UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30,December 31, 2023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-5667
Cabot Corporation
(Exact name of registrant as specified in its charter)
Delaware | 04-2271897 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Two Seaport Lane, Suite 1400 Boston, Massachusetts | 02210-2019 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (617) 345-0100
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $1 par value per share | CBT | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
|
|
|
|
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
|
|
|
|
Emerging growth company | ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The Company had 55,936,98455,430,710 shares of common stock, $1.00 par value per share, outstanding as of August 3, 2023.February 6, 2024.
INDEX
Part I. |
| ||
|
|
|
|
| Item 1. |
| |
| 3 | ||
| 4 | ||
| 5 | ||
| 7 | ||
|
| 8 | |
| 10 | ||
|
|
|
|
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3. |
| |
| Item 4. |
| |
|
|
| |
Part II. |
| ||
|
|
| |
| Item 2. |
| |
|
| ||
Item 6. |
|
2
Part I. Financial Information
Item 1. Financial Statements
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions, except per share amounts) |
|
| (In millions, except per share amounts) |
| ||||||||||||||||||
Net sales and other operating revenues |
| $ | 968 |
|
| $ | 1,149 |
|
| $ | 2,966 |
|
| $ | 3,209 |
|
| $ | 958 |
|
| $ | 965 |
|
Cost of sales |
|
| 745 |
|
|
| 914 |
|
|
| 2,352 |
|
|
| 2,544 |
|
|
| 740 |
|
|
| 784 |
|
Gross profit |
|
| 223 |
|
|
| 235 |
|
|
| 614 |
|
|
| 665 |
|
|
| 218 |
|
|
| 181 |
|
Selling and administrative expenses |
|
| 58 |
|
|
| 51 |
|
|
| 184 |
|
|
| 196 |
|
|
| 67 |
|
|
| 60 |
|
Research and technical expenses |
|
| 15 |
|
|
| 14 |
|
|
| 43 |
|
|
| 41 |
|
|
| 15 |
|
|
| 13 |
|
Loss on sale of business and asset impairment charge (Note D) |
|
| — |
|
|
| 2 |
|
|
| 3 |
|
|
| 206 |
| ||||||||
Gain on bargain purchase of a business (Note C) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24 | ) | ||||||||
Loss on sale of business |
|
| — |
|
|
| 3 |
| ||||||||||||||||
Income (loss) from operations |
|
| 150 |
|
|
| 168 |
|
|
| 384 |
|
|
| 246 |
|
|
| 136 |
|
|
| 105 |
|
Interest and dividend income |
|
| 7 |
|
|
| — |
|
|
| 22 |
|
|
| 7 |
|
|
| 9 |
|
|
| 6 |
|
Interest expense |
|
| (24 | ) |
|
| (15 | ) |
|
| (69 | ) |
|
| (38 | ) |
|
| (22 | ) |
|
| (22 | ) |
Other income (expense) |
|
| (3 | ) |
|
| (1 | ) |
|
| (13 | ) |
|
| (9 | ) |
|
| (29 | ) |
|
| (5 | ) |
Income (loss) before income taxes |
|
| 130 |
|
|
| 152 |
|
|
| 324 |
|
|
| 206 |
| ||||||||
Income (loss) from operations before income taxes |
|
| 94 |
|
|
| 84 |
| ||||||||||||||||
(Provision) benefit for income taxes |
|
| (41 | ) |
|
| (49 | ) |
|
| (90 | ) |
|
| (73 | ) |
|
| (34 | ) |
|
| (20 | ) |
Equity in earnings of affiliated companies, net of tax |
|
| 1 |
|
|
| 3 |
|
|
| 4 |
|
|
| 7 |
|
|
| 1 |
|
|
| 2 |
|
Net income (loss) |
|
| 90 |
|
|
| 106 |
|
|
| 238 |
|
|
| 140 |
|
|
| 61 |
|
|
| 66 |
|
Net income (loss) attributable to noncontrolling interests, net |
|
| 8 |
|
|
| 9 |
|
|
| 27 |
|
|
| 25 |
|
|
| 11 |
|
|
| 12 |
|
Net income (loss) attributable to Cabot Corporation |
| $ | 82 |
|
| $ | 97 |
|
| $ | 211 |
|
| $ | 115 |
|
| $ | 50 |
|
| $ | 54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic |
|
| 56.1 |
|
|
| 56.3 |
|
|
| 56.2 |
|
|
| 56.5 |
|
|
| 55.3 |
|
|
| 56.3 |
|
Diluted |
|
| 56.5 |
|
|
| 56.8 |
|
|
| 56.7 |
|
|
| 56.9 |
|
|
| 55.8 |
|
|
| 56.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic |
| $ | 1.44 |
|
| $ | 1.70 |
|
| $ | 3.68 |
|
| $ | 2.00 |
|
| $ | 0.88 |
|
| $ | 0.94 |
|
Diluted |
| $ | 1.43 |
|
| $ | 1.69 |
|
| $ | 3.65 |
|
| $ | 1.99 |
|
| $ | 0.88 |
|
| $ | 0.93 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Net income (loss) |
| $ | 90 |
|
| $ | 106 |
|
| $ | 238 |
|
| $ | 140 |
|
| $ | 61 |
|
| $ | 66 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Foreign currency translation adjustment, net of tax |
|
| (20 | ) |
|
| (102 | ) |
|
| 117 |
|
|
| (84 | ) |
|
| 62 |
|
|
| 88 |
|
Derivatives: net investment hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(Gains) losses reclassified to interest expense, net of tax |
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| (4 | ) |
|
| (1 | ) |
|
| (1 | ) |
(Gains) losses excluded from effectiveness testing and amortized |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
| ||||||||
Pension and other postretirement benefit liability adjustments, net of tax |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 2 |
| ||||||||
Other comprehensive income (loss), net of tax of $—, $ —, $— and ($1) |
|
| (21 | ) |
|
| (103 | ) |
|
| 113 |
|
|
| (85 | ) | ||||||||
Other comprehensive income (loss), net of tax of $ 1 and $ — |
|
| 61 |
|
|
| 87 |
| ||||||||||||||||
Comprehensive income (loss) |
|
| 69 |
|
|
| 3 |
|
|
| 351 |
|
|
| 55 |
|
|
| 122 |
|
|
| 153 |
|
Net income (loss) attributable to noncontrolling interests, net |
|
| 8 |
|
|
| 9 |
|
|
| 27 |
|
|
| 25 |
|
|
| 11 |
|
|
| 12 |
|
Foreign currency translation adjustment attributable to |
|
| (6 | ) |
|
| (9 | ) |
|
| 3 |
|
|
| (6 | ) |
|
| 4 |
|
|
| 6 |
|
Comprehensive income (loss) attributable to noncontrolling interests |
|
| 2 |
|
|
| — |
|
|
| 30 |
|
|
| 19 |
|
|
| 15 |
|
|
| 18 |
|
Comprehensive income (loss) attributable to Cabot Corporation |
| $ | 67 |
|
| $ | 3 |
|
| $ | 321 |
|
| $ | 36 |
|
| $ | 107 |
|
| $ | 135 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
UNAUDITED
|
| June 30, 2023 |
|
| September 30, 2022 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 220 |
|
| $ | 206 |
|
| $ | 244 |
|
| $ | 238 |
|
Accounts and notes receivable, net of reserve for doubtful |
|
| 688 |
|
|
| 836 |
| ||||||||
Accounts and notes receivable, net of reserve for doubtful |
|
| 726 |
|
|
| 695 |
| ||||||||
Inventories: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Raw materials |
|
| 152 |
|
|
| 182 |
|
|
| 154 |
|
|
| 148 |
|
Work in process |
|
| 1 |
|
|
| — |
| ||||||||
Finished goods |
|
| 370 |
|
|
| 427 |
|
|
| 398 |
|
|
| 374 |
|
Other |
|
| 69 |
|
|
| 55 |
|
|
| 65 |
|
|
| 63 |
|
Total inventories |
|
| 592 |
|
|
| 664 |
|
|
| 617 |
|
|
| 585 |
|
Prepaid expenses and other current assets |
|
| 102 |
|
|
| 114 |
|
|
| 105 |
|
|
| 108 |
|
Total current assets |
|
| 1,602 |
|
|
| 1,820 |
|
|
| 1,692 |
|
|
| 1,626 |
|
Property, plant and equipment, net |
|
| 1,364 |
|
|
| 1,270 |
| ||||||||
Property, plant and equipment |
|
| 3,936 |
|
|
| 3,827 |
| ||||||||
Accumulated depreciation |
|
| (2,492 | ) |
|
| (2,415 | ) | ||||||||
Net property, plant and equipment |
|
| 1,444 |
|
|
| 1,412 |
| ||||||||
Goodwill |
|
| 136 |
|
|
| 129 |
|
|
| 138 |
|
|
| 134 |
|
Equity affiliates |
|
| 19 |
|
|
| 20 |
|
|
| 21 |
|
|
| 20 |
|
Intangible assets, net |
|
| 63 |
|
|
| 63 |
|
|
| 61 |
|
|
| 60 |
|
Deferred income taxes |
|
| 36 |
|
|
| 45 |
|
|
| 166 |
|
|
| 180 |
|
Other assets |
|
| 167 |
|
|
| 178 |
|
|
| 173 |
|
|
| 172 |
|
Total assets |
| $ | 3,387 |
|
| $ | 3,525 |
|
| $ | 3,695 |
|
| $ | 3,604 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
UNAUDITED
|
| June 30, 2023 |
|
| September 30, 2022 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||||
|
| (In millions, except share |
|
| (In millions, except share |
| ||||||||||
|
| and per share amounts) |
|
| and per share amounts) |
| ||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Short-term borrowings |
| $ | 136 |
|
| $ | 347 |
|
| $ | 206 |
|
| $ | 174 |
|
Accounts payable and accrued liabilities |
|
| 568 |
|
|
| 707 |
|
|
| 585 |
|
|
| 600 |
|
Income taxes payable |
|
| 27 |
|
|
| 44 |
|
|
| 31 |
|
|
| 40 |
|
Current portion of long-term debt |
|
| 7 |
|
|
| 7 |
|
|
| 8 |
|
|
| 8 |
|
Total current liabilities |
|
| 738 |
|
|
| 1,105 |
|
|
| 830 |
|
|
| 822 |
|
Long-term debt |
|
| 1,093 |
|
|
| 1,089 |
|
|
| 1,098 |
|
|
| 1,094 |
|
Deferred income taxes |
|
| 60 |
|
|
| 65 |
|
|
| 51 |
|
|
| 50 |
|
Other liabilities |
|
| 230 |
|
|
| 234 |
|
|
| 241 |
|
|
| 231 |
|
Contingencies (Note G) |
|
|
|
|
|
| ||||||||||
Contingencies (Note E) |
|
|
|
|
|
| ||||||||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Authorized: 2,000,000 shares of $1 par value, Issued and Outstanding: None and none |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Authorized: 200,000,000 shares of $1 par value, Issued: 56,072,816 and 56,385,963 shares, Outstanding: 55,936,984 and 56,248,559 shares |
|
| 56 |
|
|
| 56 |
| ||||||||
Less cost of 135,832 and 137,404 shares of common treasury stock |
|
| (3 | ) |
|
| (4 | ) | ||||||||
Authorized: 200,000,000 shares of $1 par value, Issued: 55,560,648 and 55,379,636 shares, Outstanding: 55,424,816 and 55,243,804 shares |
|
| 55 |
|
|
| 55 |
| ||||||||
Less cost of 135,832 and 135,832 shares of common treasury stock |
|
| (3 | ) |
|
| (3 | ) | ||||||||
Additional paid-in capital |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Retained earnings |
|
| 1,407 |
|
|
| 1,284 |
|
|
| 1,582 |
|
|
| 1,574 |
|
Accumulated other comprehensive income (loss) |
|
| (329 | ) |
|
| (439 | ) |
|
| (305 | ) |
|
| (362 | ) |
Total Cabot Corporation stockholders' equity |
|
| 1,131 |
|
|
| 898 |
|
|
| 1,329 |
|
|
| 1,264 |
|
Noncontrolling interests |
|
| 135 |
|
|
| 134 |
|
|
| 146 |
|
|
| 143 |
|
Total stockholders' equity |
|
| 1,266 |
|
|
| 1,032 |
|
|
| 1,475 |
|
|
| 1,407 |
|
Total liabilities and stockholders' equity |
| $ | 3,387 |
|
| $ | 3,525 |
|
| $ | 3,695 |
|
| $ | 3,604 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 238 |
|
| $ | 140 |
|
| $ | 61 |
|
| $ | 66 |
|
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: |
|
|
|
|
|
| ||||||||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
|
| 107 |
|
|
| 111 |
|
|
| 41 |
|
|
| 35 |
|
Loss on sale of business and asset impairment charge |
|
| 3 |
|
|
| 206 |
| ||||||||
Loss on sale of business |
|
| — |
|
|
| 3 |
| ||||||||
Gain on sale of land |
|
| (1 | ) |
|
| (17 | ) |
|
| — |
|
|
| (1 | ) |
Gain on bargain purchase of a business |
|
| — |
|
|
| (24 | ) | ||||||||
Deferred tax provision (benefit) |
|
| (1 | ) |
|
| (39 | ) |
|
| 7 |
|
|
| — |
|
Equity in earnings of affiliated companies |
|
| (4 | ) |
|
| (7 | ) |
|
| (1 | ) |
|
| (2 | ) |
Share-based compensation |
|
| 15 |
|
|
| 17 |
|
|
| 6 |
|
|
| 6 |
|
Other non-cash (income) expense |
|
| 2 |
|
|
| 15 |
|
|
| 37 |
|
|
| (4 | ) |
Cash dividends received from equity affiliates |
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts and notes receivable |
|
| 173 |
|
|
| (286 | ) |
|
| (7 | ) |
|
| 80 |
|
Inventories |
|
| 100 |
|
|
| (231 | ) |
|
| (19 | ) |
|
| (14 | ) |
Prepaid expenses and other assets |
|
| 17 |
|
|
| (35 | ) |
|
| (2 | ) |
|
| (12 | ) |
Accounts payable and accrued liabilities |
|
| (177 | ) |
|
| 127 |
|
|
| (20 | ) |
|
| (100 | ) |
Income taxes payable |
|
| (18 | ) |
|
| 18 |
|
|
| (10 | ) |
|
| (10 | ) |
Other liabilities |
|
| 1 |
|
|
| (1 | ) |
|
| 11 |
|
|
| 3 |
|
Cash provided (used) by operating activities |
|
| 457 |
|
|
| (5 | ) | ||||||||
Cash provided by (used in) operating activities |
|
| 105 |
|
|
| 52 |
| ||||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Additions to property, plant and equipment |
|
| (166 | ) |
|
| (121 | ) |
|
| (54 | ) |
|
| (35 | ) |
Proceeds from sale of land |
|
| 7 |
|
|
| 18 |
|
|
| — |
|
|
| 7 |
|
Proceeds from sale of business |
|
| 6 |
|
|
| 79 |
|
|
| — |
|
|
| 6 |
|
Cash paid for acquisition of business, net of cash acquired of $— and $5 |
|
| — |
|
|
| (9 | ) | ||||||||
Proceeds from insurance settlements |
|
| 12 |
|
|
| 1 |
| ||||||||
Other |
|
| 2 |
|
|
| 1 |
|
|
| — |
|
|
| 5 |
|
Cash provided (used) by investing activities |
|
| (139 | ) |
|
| (31 | ) | ||||||||
Cash provided by (used in) investing activities |
|
| (54 | ) |
|
| (17 | ) | ||||||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from short-term borrowings |
|
| 24 |
|
|
| 26 |
|
|
| — |
|
|
| 11 |
|
Repayments of short-term borrowings |
|
| (48 | ) |
|
| — |
| ||||||||
Proceeds from issuance (repayments) of commercial paper, net |
|
| (188 | ) |
|
| 193 |
|
|
| 32 |
|
|
| (48 | ) |
Proceeds from long-term debt, net of issuance costs |
|
| 79 |
|
|
| 394 |
| ||||||||
Repayments of long-term debt |
|
| (88 | ) |
|
| (357 | ) |
|
| (1 | ) |
|
| (6 | ) |
Purchases of common stock |
|
| (48 | ) |
|
| (48 | ) |
|
| (33 | ) |
|
| (17 | ) |
Proceeds from sales of common stock |
|
| 4 |
|
|
| 6 |
|
|
| 7 |
|
|
| 3 |
|
Cash dividends paid to noncontrolling interests |
|
| (41 | ) |
|
| (22 | ) |
|
| (12 | ) |
|
| (14 | ) |
Cash dividends paid to common stockholders |
|
| (65 | ) |
|
| (63 | ) |
|
| (22 | ) |
|
| (21 | ) |
Cash provided (used) by financing activities |
|
| (371 | ) |
|
| 129 |
| ||||||||
Cash provided by (used in) financing activities |
|
| (29 | ) |
|
| (92 | ) | ||||||||
Effects of exchange rate changes on cash |
|
| 67 |
|
|
| (49 | ) |
|
| (16 | ) |
|
| 41 |
|
Increase (decrease) in cash and cash equivalents |
|
| 14 |
|
|
| 44 |
|
|
| 6 |
|
|
| (16 | ) |
Cash and cash equivalents at beginning of period |
|
| 206 |
|
|
| 170 |
|
|
| 238 |
|
|
| 206 |
|
Cash and cash equivalents at end of period |
| $ | 220 |
|
| $ | 214 |
|
| $ | 244 |
|
| $ | 190 |
|
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||
|
| (In millions) |
| |||||
Cash and cash equivalents |
| $ | 220 |
|
| $ | 208 |
|
Restricted cash classified within Prepaid expenses and other current assets |
|
| — |
|
|
| 6 |
|
Cash, cash equivalents and restricted cash |
| $ | 220 |
|
| $ | 214 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
UNAUDITED
|
| Common Stock, Net of Treasury Stock |
|
| Additional |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Total Cabot Corporation Stockholders’ |
|
| Noncontrolling |
|
| Total Stockholders’ |
|
| Common Stock, Net of Treasury Stock |
|
| Additional |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Total Cabot Corporation Stockholders’ |
|
| Noncontrolling |
|
| Total Stockholders’ |
| ||||||||||||||||||||||
|
| Shares |
|
| Cost |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Interests |
|
| Equity |
|
| Shares |
|
| Cost |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||||||||||
|
| (In millions, except share amounts) |
|
| (In millions, except share amounts) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 |
|
| 56,249 |
|
| $ | 52 |
|
| $ | 1 |
|
| $ | 1,284 |
|
| $ | (439 | ) |
| $ | 898 |
|
| $ | 134 |
|
| $ | 1,032 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
| 54 |
|
|
|
|
| 54 |
|
|
| 12 |
|
|
| 66 |
| ||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| 81 |
|
|
| 81 |
|
|
| 6 |
|
|
| 87 |
| ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Common stock, $0.37 per share |
|
|
|
|
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
| (21 | ) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2 | ) |
|
| (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 309 |
|
|
| 1 |
|
|
| 2 |
|
|
|
|
|
|
| 3 |
|
|
|
|
| 3 |
| ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
|
|
|
|
| 11 |
|
|
|
|
|
|
| 11 |
|
|
|
|
| 11 |
| ||||||||||||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| (242 | ) |
|
| — |
|
|
| (14 | ) |
|
| (3 | ) |
|
|
|
|
| (17 | ) |
|
|
|
|
| (17 | ) | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
|
| 56,316 |
|
| $ | 53 |
|
| $ | - |
|
| $ | 1,314 |
|
| $ | (358 | ) |
| $ | 1,009 |
|
| $ | 150 |
|
| $ | 1,159 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
| 75 |
|
|
|
|
| 75 |
|
|
| 7 |
|
|
| 82 |
| ||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| 44 |
|
|
| 44 |
|
|
| 3 |
|
|
| 47 |
| ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Common stock, $0.37 per share |
|
|
|
|
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
| (21 | ) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (27 | ) |
|
| (27 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 29 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
|
|
|
| 1 |
| ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
|
|
|
|
| 7 |
|
|
|
|
|
|
| 7 |
|
|
|
|
| 7 |
| ||||||||||||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| (199 | ) |
|
| — |
|
|
| (8 | ) |
|
| (8 | ) |
|
|
|
| (16 | ) |
|
|
|
| (16 | ) | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 |
|
| 56,146 |
|
| $ | 53 |
|
| $ | - |
|
| $ | 1,360 |
|
| $ | (314 | ) |
| $ | 1,099 |
|
| $ | 133 |
|
| $ | 1,232 |
| ||||||||||||||||||||||||||||||||
Balance at September 30, 2023 |
|
| 55,244 |
|
| $ | 52 |
|
| $ | — |
|
| $ | 1,574 |
|
| $ | (362 | ) |
| $ | 1,264 |
|
| $ | 143 |
|
| $ | 1,407 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
| 82 |
|
|
|
|
| 82 |
|
|
| 8 |
|
|
| 90 |
|
|
|
|
|
|
|
|
| 50 |
|
|
|
|
| 50 |
|
|
| 11 |
|
|
| 61 |
| ||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| (15 | ) |
|
| (15 | ) |
|
| (6 | ) |
|
| (21 | ) |
|
|
|
|
|
|
|
|
|
| 57 |
|
|
| 57 |
|
|
| 4 |
|
|
| 61 |
| ||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Common stock, $0.40 per share |
|
|
|
|
|
|
|
| (23 | ) |
|
|
|
| (23 | ) |
|
|
|
| (23 | ) |
|
|
|
|
|
|
|
| (22 | ) |
|
|
|
| (22 | ) |
|
|
|
| (22 | ) | ||||||||||||||||||||
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (12 | ) |
|
| (12 | ) | ||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
| — |
|
|
| 441 |
|
|
| — |
|
|
| 7 |
|
|
|
|
|
|
| 7 |
|
|
|
|
| 7 |
| ||||||||||||
Share-based compensation |
|
|
|
|
|
| 3 |
|
|
|
|
|
|
| 3 |
|
|
|
|
| 3 |
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
| 6 |
|
|
|
|
| 6 |
| ||||||||||||||||||||
Purchase and retirement of common stock |
|
| (213 | ) |
|
| — |
|
|
| (3 | ) |
|
| (12 | ) |
|
|
|
| (15 | ) |
|
|
|
| (15 | ) |
|
| (260 | ) |
|
| — |
|
|
| (13 | ) |
|
| (20 | ) |
|
|
|
|
| (33 | ) |
|
|
|
|
| (33 | ) | ||||||
Balance at June 30, 2023 |
|
| 55,937 |
|
| $ | 53 |
|
| $ | — |
|
| $ | 1,407 |
|
| $ | (329 | ) |
| $ | 1,131 |
|
| $ | 135 |
|
| $ | 1,266 |
| ||||||||||||||||||||||||||||||||
Balance at December 31, 2023 |
|
| 55,425 |
|
| $ | 52 |
|
| $ | - |
|
| $ | 1,582 |
|
| $ | (305 | ) |
| $ | 1,329 |
|
| $ | 146 |
|
| $ | 1,475 |
|
The accompanying notes are an integral part of these consolidated financial statements.
8
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
UNAUDITED
|
| Common Stock, Net of Treasury Stock |
|
| Additional |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Total Cabot Corporation Stockholders’ |
|
| Noncontrolling |
|
| Total Stockholders’ |
|
| Common Stock, Net of Treasury Stock |
|
| Additional |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Total Cabot Corporation Stockholders’ |
|
| Noncontrolling |
|
| Total Stockholders’ |
| ||||||||||||||||||||||
|
| Shares |
|
| Cost |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Interests |
|
| Equity |
|
| Shares |
|
| Cost |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||||||||||
|
| (In millions, except share amounts) |
|
| (In millions, except share amounts) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 |
|
| 56,727 |
|
| $ | 53 |
|
| $ | 24 |
|
| $ | 1,159 |
|
| $ | (289 | ) |
| $ | 947 |
|
| $ | 143 |
|
| $ | 1,090 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
| (89 | ) |
|
|
|
| (89 | ) |
|
| 9 |
|
|
| (80 | ) | ||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| (30 | ) |
|
| (30 | ) |
|
| 2 |
|
|
| (28 | ) | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Common stock, $0.37 per share |
|
|
|
|
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
| (21 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 202 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
|
|
|
|
| 6 |
|
|
|
|
|
|
| 6 |
|
|
|
|
| 6 |
| ||||||||||||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| (349 | ) |
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
|
|
|
| (19 | ) |
|
|
|
|
| (19 | ) | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 |
|
| 56,580 |
|
| $ | 53 |
|
| $ | 11 |
|
| $ | 1,049 |
|
| $ | (319 | ) |
| $ | 794 |
|
| $ | 154 |
|
| $ | 948 |
| ||||||||||||||||||||||||||||||||
Balance at September 30, 2022 |
|
| 56,249 |
|
| $ | 52 |
|
| $ | 1 |
|
| $ | 1,284 |
|
| $ | (439 | ) |
| $ | 898 |
|
| $ | 134 |
|
| $ | 1,032 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
| 107 |
|
|
|
|
| 107 |
|
|
| 7 |
|
|
| 114 |
|
|
|
|
|
|
|
|
| 54 |
|
|
|
|
| 54 |
|
|
| 12 |
|
|
| 66 |
| ||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| 45 |
|
|
| 45 |
|
|
| 1 |
|
|
| 46 |
|
|
|
|
|
|
|
|
|
|
| 81 |
|
|
| 81 |
|
|
| 6 |
|
|
| 87 |
| ||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Common stock, $0.37 per share |
|
|
|
|
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
|
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
| (21 | ) | ||||||||||||||||||||
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (14 | ) |
|
| (14 | ) |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (2 | ) |
|
| (2 | ) | ||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 72 |
|
|
| — |
|
|
| 3 |
|
|
|
|
|
|
| 3 |
|
|
|
|
| 3 |
|
|
| 309 |
|
|
| 1 |
|
|
| 2 |
|
|
|
|
|
|
| 3 |
|
|
|
|
| 3 |
| ||||||||||||
Share-based compensation |
|
|
|
|
|
| 5 |
|
|
|
|
|
|
| 5 |
|
|
|
|
| 5 |
|
|
|
|
|
|
| 11 |
|
|
|
|
|
|
| 11 |
|
|
|
|
| 11 |
| ||||||||||||||||||||
Purchase and retirement of common stock |
|
| (221 | ) |
|
| — |
|
|
| (15 | ) |
|
|
|
|
|
|
|
| (15 | ) |
|
|
|
|
| (15 | ) |
|
| (242 | ) |
|
| — |
|
|
| (14 | ) |
|
| (3 | ) |
|
|
|
|
| (17 | ) |
|
|
|
|
| (17 | ) | |||||
Balance at March 31, 2022 |
|
| 56,431 |
|
| $ | 53 |
|
| $ | 4 |
|
| $ | 1,135 |
|
| $ | (274 | ) |
| $ | 918 |
|
| $ | 148 |
|
| $ | 1,066 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
| 97 |
|
|
|
|
| 97 |
|
|
| 9 |
|
|
| 106 |
| ||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| (94 | ) |
|
| (94 | ) |
|
| (9 | ) |
|
| (103 | ) | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Common stock, $0.37 per share |
|
|
|
|
|
|
|
| (21 | ) |
|
|
|
| (21 | ) |
|
|
|
| (21 | ) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 66 |
|
|
| — |
|
|
| 3 |
|
|
|
|
|
|
| 3 |
|
|
|
|
| 3 |
| ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
|
|
|
|
| 6 |
|
|
|
|
|
|
| 6 |
|
|
|
|
| 6 |
| ||||||||||||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| (198 | ) |
|
| — |
|
|
| (13 | ) |
|
| (1 | ) |
|
|
|
|
| (14 | ) |
|
|
|
|
| (14 | ) | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 |
|
| 56,299 |
|
| $ | 53 |
|
| $ | — |
|
| $ | 1,210 |
|
| $ | (368 | ) |
| $ | 895 |
|
| $ | 148 |
|
| $ | 1,043 |
| ||||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
|
| 56,316 |
|
| $ | 53 |
|
| $ | — |
|
| $ | 1,314 |
|
| $ | (358 | ) |
| $ | 1,009 |
|
| $ | 150 |
|
| $ | 1,159 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
CABOT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,December 31, 2023
UNAUDITED
A. Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting policiesprinciples generally accepted in the United States (“U.S.”) (“GAAP”) and include the accounts of Cabot Corporation (“Cabot” or the “Company”) and its wholly-owned subsidiaries and majority-owned and controlled U.S. and non-U.S. subsidiaries. Additionally, Cabot considers consolidation of entities over which control is achieved through means other than voting rights. Intercompany transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required by Form 10-K. Additional information may be obtained by referring to Cabot’s Annual Report on Form 10-K for its fiscal year ended September 30, 2022 (“20222023 (the “2023 10-K”).
The financial information submitted herewith is unaudited and reflects all adjustments which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods ended June 30,December 31, 2023 and 2022. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of the results to be expected for the fiscal year.
B. Significant Accounting Policies
Recent Accounting PronouncementsFull detail on the Company’s significant accounting policies may be obtained by referring to Note A in the 2023 10-K.
In August 2022,Argentina Devaluation
The Company’s wholly-owned Argentinian subsidiary operates in a highly inflationary economy and, as a result, the functional currency of the subsidiary is Cabot’s reporting currency, the U.S. government enacteddollar. During the Inflation Reduction Act ("IRA")three months ended December 31, 2023, the Company recorded foreign exchange losses of $40 million related to the revaluation of non-functional currency denominated monetary asset and liability balances, of which among other things, provides$33 million related to a single devaluation action by the newly elected Argentine government. The Company invests cash in money market funds and recorded investment income of $12 million for a 1% excise tax on stock repurchases. The IRA was effective January 1,the three months ended December 31, 2023. The Company’s applicationforeign exchange losses and investment gains are recorded in Other income (expense) in the Consolidated Statement of the statute did not have a material effect on its Consolidated Financial Statements, or its share repurchase program.Operations.
Recently Adopted Accounting Standards
In November 2022, the FASB issued a new standard on the disclosure of supplier financing programs. The new standard requires qualitative and quantitative disclosuredisclosures as to the nature and potential magnitude of such programs in addition to program activity and changes for the periods presented. The Company adopted this standard on October 1, 2023. See Note J for disclosures related to the Company's supplier financing programs. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.
Recent Accounting Pronouncements
In November 2023, the FASB issued a new standard, Improvement to Reportable Segment Disclosures. The new guidance enhances the disclosure of significant reportable segment expenses. The new standard is effective for fiscal years beginning after December 15, 20222023, and early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on itsthe Company’s Consolidated Financial Statements.
In December 2023, the FASB issued a new standard, Improvements to Income Tax Disclosures. The new guidance requires additional disclosures primarily related to the income tax rate reconciliation and income taxes paid. The new standard is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on the Company’s Consolidated Financial Statements.
C. Acquisition
Tokai Carbon (Tianjin) Co.
In February 2022, the Company purchased 100% of the registered capital of Tokai Carbon (Tianjin) Co., a carbon black manufacturing facility, from Tokai Carbon Group for a net purchase price of $9 million, consisting of cash consideration of $14 million, including customary post-closing adjustments, and net of $5 million of cash acquired.
The excess of the fair value of the net assets over the purchase price was recorded as a gain of $24 million for the three months ended March 31, 2022. The Gain on bargain purchase of a business arose primarily due to equipment upgrades required after the purchase to continue to utilize the existing assets.
10
D. Divestitures
Sale of Purification Solutions Business
In March 2022, the Company completed the sale of its Purification Solutions business, a reporting segment of the Company, to an affiliate of funds advised by One Equity Partners for total cash proceeds of $85 million, net of $7 million cash transferred. The Company recognized a pre-tax impairment charge of $197 million during the first quarter of fiscal 2022 and a pre-tax loss on sale of the Purification Solutions business of $10 million during fiscal 2022. The purchase price of the Purification Solutions business was subject to customary post-closing adjustments, which were finalized during the first quarter of fiscal 2023 and resulted in an additional pre-tax loss on sale of $3 million.
E.C. Goodwill and Intangible Assets
The carrying amount of goodwill attributable to each reportable segment and the changes in those balances during the ninethree months ended June 30,December 31, 2023 are as follows:
|
| Reinforcement |
|
| Performance |
|
| Total |
| |||
|
| (In millions) |
| |||||||||
Balance at September 30, 2022 |
| $ | 46 |
|
| $ | 83 |
|
| $ | 129 |
|
Foreign currency impact |
|
| 6 |
|
|
| 1 |
|
| $ | 7 |
|
Balance at June 30, 2023 |
| $ | 52 |
|
| $ | 84 |
|
| $ | 136 |
|
|
| Reinforcement |
|
| Performance |
|
| Total |
| |||
|
| (In millions) |
| |||||||||
Balance at September 30, 2023 |
| $ | 51 |
|
| $ | 83 |
|
| $ | 134 |
|
Foreign currency impact |
|
| 2 |
|
|
| 2 |
|
|
| 4 |
|
Balance at December 31, 2023 |
| $ | 53 |
|
| $ | 85 |
|
| $ | 138 |
|
The following table provides information regarding the Company’s intangible assets:
|
| June 30, 2023 |
|
| September 30, 2022 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||||||||||||||||||
Intangible assets with finite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Developed technologies |
| $ | 34 |
|
| $ | (9 | ) |
| $ | 25 |
|
| $ | 34 |
|
| $ | (8 | ) |
| $ | 26 |
|
| $ | 35 |
|
| $ | (11 | ) |
|
| 24 |
|
| $ | 34 |
|
| $ | (10 | ) |
| $ | 24 |
|
Trademarks |
|
| 2 |
|
|
| (1 | ) |
| $ | 1 |
|
|
| 2 |
|
|
| (1 | ) |
|
| 1 |
|
|
| 2 |
|
|
| (1 | ) |
|
| 1 |
|
|
| 2 |
|
|
| (1 | ) |
|
| 1 |
|
Customer relationships |
|
| 67 |
|
|
| (30 | ) |
| $ | 37 |
|
|
| 59 |
|
|
| (23 | ) |
|
| 36 |
|
|
| 67 |
|
|
| (31 | ) |
|
| 36 |
|
|
| 65 |
|
|
| (30 | ) |
|
| 35 |
|
Total intangible assets |
| $ | 103 |
|
| $ | (40 | ) |
| $ | 63 |
|
| $ | 95 |
|
| $ | (32 | ) |
| $ | 63 |
|
| $ | 104 |
|
| $ | (43 | ) |
| $ | 61 |
|
| $ | 101 |
|
| $ | (41 | ) |
| $ | 60 |
|
Intangible assets are amortized over their estimated useful lives, which range between ten and twenty-five years, with a weighted average amortization period of approximately seventeen years. Amortization expense was $1 million for each ofboth the three months ended June 30,December 31, 2023 and 2022 was $1 million. Amortization expense was $4 million and $5 million for the nine months ended June 30, 2023 and 2022, respectively.2022. Amortization expense is included in Cost of sales, Selling and administrative expenses and Research and technical expenses in the Consolidated Statements of Operations. Total amortization expense is estimated to be approximately $6 million each year for the next five fiscal years.
11
F.D. Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Comprehensive income combines net income (loss) and other comprehensive income items, which are reported as components of stockholders’ equity in the accompanying Consolidated Balance Sheets.
Changes in each component of AOCI, net of tax, were as follows:
|
| Currency |
|
| Pension and Other |
|
| Total |
|
| Currency |
|
| Pension and Other |
|
| Total |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Balance at September 30, 2022, attributable to Cabot Corporation |
| $ | (429 | ) |
| $ | (10 | ) |
| $ | (439 | ) | ||||||||||||
Balance at September 30, 2023, attributable to Cabot Corporation |
| $ | (353 | ) |
| $ | (9 | ) |
| $ | (362 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 88 |
|
|
| — |
|
|
| 88 |
|
|
| 62 |
|
|
| — |
|
|
| 62 |
|
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Less: Other comprehensive income (loss) attributable to |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Balance at December 31, 2022, attributable to Cabot Corporation |
|
| (348 | ) |
|
| (10 | ) |
|
| (358 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 49 |
|
|
| — |
|
|
| 49 |
| ||||||||||||
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) | ||||||||||||
Less: Other comprehensive income (loss) attributable to |
|
| 3 |
|
|
| — |
|
|
| 3 |
| ||||||||||||
Balance at March 31, 2023, attributable to Cabot Corporation |
| $ | (303 | ) |
| $ | (11 | ) |
| $ | (314 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (20 | ) |
|
| 1 |
|
|
| (19 | ) | ||||||||||||
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) | ||||||||||||
Less: Other comprehensive income (loss) attributable to |
|
| (6 | ) |
|
| — |
|
|
| (6 | ) | ||||||||||||
Balance at June 30, 2023, attributable to Cabot Corporation |
| $ | (318 | ) |
| $ | (11 | ) |
| $ | (329 | ) | ||||||||||||
Balance at December 31, 2023, attributable to Cabot Corporation |
| $ | (296 | ) |
| $ | (9 | ) |
| $ | (305 | ) |
11
|
| Currency |
|
| Pension and Other |
|
| Total |
| |||
|
| (In millions) |
| |||||||||
Balance at September 30, 2022, attributable to Cabot Corporation |
| $ | (429 | ) |
| $ | (10 | ) |
| $ | (439 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Less: Other comprehensive income (loss) attributable to |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Balance at December 31, 2022, attributable to Cabot Corporation |
| $ | (348 | ) |
| $ | (10 | ) |
| $ | (358 | ) |
The amounts
For both the three months ended December 31, 2023 and 2022, the Company reclassified $1 million of gain associated with net investment hedgesout of AOCI and into interest expense on the Consolidated Statements of Operations in each of the three and nine months ended June 30, 2023 and 2022 were are follows:Operations.
|
| Affected Line Item in the Consolidated |
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| Statements of Operations |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
| (In millions) |
|
|
|
|
|
|
| |||||||
Derivatives: net investment hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Gains) losses reclassified to interest expense |
| Interest expense |
| $ | (1 | ) |
| $ | (1 | ) |
| $ | (4 | ) |
| $ | (4 | ) |
(Gains) losses excluded from effectiveness testing and amortized to interest expense |
| Interest expense |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
Release of currency translation adjustment |
| Loss on sale of business and asset impairment charge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
Pension and other postretirement |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Release of actuarial losses and prior service cost (credit) |
| Loss on sale of business and asset impairment charge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Amortization of actuarial losses and prior service cost (credit) |
| Other income (expense) |
|
| (1 | ) |
|
| 1 |
|
|
| (2 | ) |
|
| 1 |
|
Total before tax |
|
|
| $ | (2 | ) |
| $ | — |
|
| $ | (5 | ) |
| $ | 32 |
|
12
G.E. Contingencies
Respirator Liabilities
Cabot has exposure in connection with a safety respiratory products business that a subsidiary acquired from American Optical Corporation (“AO”) in an April 1990 asset purchase transaction. The subsidiary manufactured respirators under the AO brand and disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, in certain circumstances, to assume a portion of AO’s liabilities, including costs of legal fees together with amounts paid in settlements and judgments, allocable to AO respiratory products used prior to the 1990 purchase by the Cabot subsidiary. In exchange for the subsidiary’s assumption of certain of AO’s respirator liabilities, AO agreed to provide to the subsidiary the benefits of: (i) AO’s insurance coverage for the period prior to the 1990 acquisition and (ii) a former owner’s indemnity of AO holding it harmless from any liability allocable to AO respiratory products used prior to May 1982. As more fully described in the 20222023 10-K, the respirator liabilities generally involve claims for personal injury, including asbestosis, silicosis and coal worker’s pneumoconiosis, allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or labeled. At no time did this respiratory product line represent a significant portion of the respirator market. In addition to Cabot’s subsidiary, other parties are responsible for significant portions of the costs of these respirator liabilities (as defined in the 20222023 10-K, the “Payor Group”). On July 26, 2022, one of the members of the Payor Group, Aearo Technologies (“Aearo”), voluntarily filed for Chapter 11 bankruptcy protection with the stated goal of establishing a trust, funded by Aearo and its parent 3M, to satisfy respirator and other unrelated claims determined to be entitled to compensation. On June 9, 2023, the court dismissed Aearo’s bankruptcy case based on motions filed by various creditors in the case. Aearo appealed the decision but did not seek to stay the dismissal, which made the dismissal effective immediately and ended the automatic bankruptcy stay. The Company will continue to monitor Aearo’s appeal; if Aearo's appeal is successful it could reinstate the bankruptcy case.
Cabot has a reserve to cover its expected share of liabilities for pending and future respirator liability claims, which is included in Other liabilities and Accounts payable and accrued liabilities on the Consolidated Balance Sheets. The Company expects these liabilities to be incurred over a number of years.The reserve balance was $38 million and $39 million at June 30,both December 31, 2023 and September 30, 2022, respectively.2023.
The Company’s current estimate of the cost of its share of pending and future respirator liability claims is based on facts and circumstances existing at this time, including the number and nature of the remaining claims. Developments that could affect the Company’s estimate include, but are not limited to, (i) significant changes in the number of future claims, (ii) changes in the rate of dismissals without payment of pending claims, (iii) significant changes in the average cost of resolving claims, including potential settlements of groups of claims, (iv) significant changes in the legal costs of defending these claims, (v) changes in the nature of claims received or changes in our assessment of the viability of these claims, (vi) trial and appellate outcomes, (vii) changes in the law and procedure applicable to these claims, (viii) the financial viability of the parties that contribute to the payment of respirator claims, and future developments in the now-dismissed Aearo bankruptcy proceedings while Aearo’s appeal is ongoing, (ix) exhaustion or changes in the recoverability of the insurance coverage maintained by certain members of the Payor Group, or a change in the availability of the indemnity provided by a former owner of AO, (x) changes in the allocation of costs among the various parties paying legal and settlement costs, and (xi) a determination that the assumptions that were used to estimate Cabot’s share of liability are no longer reasonable. The Company cannot determine the impact of these potential developments on its current estimate of its share of liability for existing and future claims. Because reserves are limited to amounts that are probable and estimable as of a relevant measurement date, and there is inherent difficulty in projecting the impact of potential developments on Cabot’s share of liability for these existing and future claims, it is reasonably possible that the liabilities for existing and future claims could change in the near term and that change could be material.
Value-added Tax (“VAT”) Matter
As outlined in Note S, Commitments and Contingencies of the 2022 10-K, the Company had filed legal actions challenging VAT related assessments it had received from a non-U.S. taxing authority. At such time, the Company did not believe that it was probable that it would incur a loss related to these matters. However, as the interpretation and application of the VAT rules related to the assessment are an unsettled issue it was reasonably possible to incur a loss. The Company estimated it could incur a charge that ranged between a nil amount and $41 million. In June 2023, the Court of Justice of the European Union issued a judgement that is favorable to the Company’s position in these matters. As a result, the Company believes the possibility it will incur a loss related to these matters is remote.
13
12
Other Matters
The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business and with respect to its divested businesses. The Company does not believe that any of these matters will have a material adverse effect on its financial position; however, litigation is inherently unpredictable. Cabot could incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could have a material impact on its results of operations in the period in which the amounts are accrued or its cash flows in the period in which the amounts are paid.
H. Insurance Recoveries
Pepinster, Belgium
In July 2021, the Company’s Specialty Compounds manufacturing and research and development facility in Pepinster, Belgium experienced significant flooding. Full production, which was temporarily halted, resumed in the second quarter of fiscal 2022.
The Company agreed to a final settlement of the related insurance claim in the second quarter of fiscal 2023 and received the final proceeds in the third quarter of fiscal 2023. During the three months and nine months ended June 30, 2023 the Company received $8 million and $14 million of insurance proceeds, respectively. Of the insurance proceeds received, $12 million related to fixed asset replacement and repairs is included in Cash provided by investing activities and $2 million is included in Cash provided by operating activities for the nine months ended June 30, 2023 in the Consolidated Statements of Cash Flows. During the three and nine months ended June 30, 2023, the Company recognized gains of nil and $9 million and loss recoveries of $4 million and $5 million, respectively, which are included within Cost of sales in the Consolidated Statements of Operations.
During the three and nine months ended June 30, 2022, the Company recorded additional expenses of $1 million and $7 million, respectively, for clean-up costs, inventory, and fixed asset impairments and simultaneously recognized a fully offsetting loss recovery from expected insurance proceeds as the Company expected insurance proceeds in excess of the total incurred costs and policy deductibles. The flood-related expenses and loss recoveries are both included within Cost of sales in the Consolidated Statements of Operations for the three and nine months ended June 30, 2022.
I.F. Income Tax
Effective Tax Rate
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (Dollars in millions) |
|
| (Dollars in millions) |
| ||||||||||||||||||
(Provision) benefit for income taxes |
| $ | (41 | ) |
| $ | (49 | ) |
| $ | (90 | ) |
| $ | (73 | ) |
| $ | (34 | ) |
| $ | (20 | ) |
Effective tax rate |
|
| 32 | % |
|
| 32 | % |
|
| 28 | % |
|
| 35 | % |
|
| 36 | % |
|
| 24 | % |
For the three months and nine months ended June 30,December 31, 2023 the (Provision) benefit for income taxes included a net discrete tax expense of $2 million and $3 million, respectively. For the three and nine months ended June 30, 2022, the (Provision) benefit for income taxes included a net discrete tax expense of $147 million and a net discrete tax benefit of $223 million, respectively, after valuation allowance. The $respectively.22 million net benefit is primarily comprised of a benefit of $36 million related to the Purification Solutions business divestiture, and a tax expense of $8 million related to withholding tax accruals on historic earnings due to changes in indefinite reinvestment assertions on certain entities.
Income tax in Interim Periods
The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. The income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. Losses from jurisdictions for which no benefit can be recognized are excluded from the overall computations of the estimated annual effective tax rate and a separate estimated annual effective tax rate is computed and applied to ordinary income or loss in the loss jurisdiction.
Valuation allowances are provided against the future tax benefits that arise from the deferred tax assets in jurisdictions for which it is expectedthe Company expects that no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.
14
Uncertainties
Cabot and certain subsidiaries are under audit in a number of jurisdictions. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a change in the unrecognized tax benefits may also occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.
Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 2020 through 2022 tax years generally remain subject to examination by the IRS and various tax years from 20132016 through 2022 remain subject to examination by the respective state tax authorities. In foreign jurisdictions, various tax years from 20052006 through 2022 remain subject to examination by their respective tax authorities.
During each of the three and nine months ended June 30,December 31, 2023 and 2022, Cabot released uncertain tax positions of a nil amount and $1 million respectively, due to the expiration of statutes of limitations in various jurisdictions. During the three and nine months ended June 30, 2022, Cabot released uncertain tax positions of a nil amount and $2 million, respectively, due to the expiration of statutes of limitations in various jurisdictions.
1513
J.G. Earnings Per Share
The following tables summarize the components of the basic and diluted earnings (loss) per common share (“EPS”) computations:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions, except per share amounts) |
|
| (In millions, except per share amounts) |
| ||||||||||||||||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income (loss) attributable to Cabot |
| $ | 82 |
|
| $ | 97 |
|
| $ | 211 |
|
| $ | 115 |
|
| $ | 50 |
|
| $ | 54 |
|
Less: Dividends and dividend equivalents |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Less: Undistributed earnings allocated to |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Earnings (loss) allocated to common |
| $ | 81 |
|
| $ | 96 |
|
| $ | 207 |
|
| $ | 113 |
| ||||||||
Earnings (loss) allocated to common |
| $ | 49 |
|
| $ | 53 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Weighted average common shares and |
|
| 57.3 |
|
|
| 57.2 |
|
|
| 57.5 |
|
|
| 57.4 |
|
|
| 56.4 |
|
|
| 57.6 |
|
Less: Participating securities(1) |
|
| 1.2 |
|
|
| 0.9 |
|
|
| 1.3 |
|
|
| 0.9 |
|
|
| 1.1 |
|
|
| 1.3 |
|
Adjusted weighted average common |
|
| 56.1 |
|
|
| 56.3 |
|
|
| 56.2 |
|
|
| 56.5 |
|
|
| 55.3 |
|
|
| 56.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Earnings (loss) per common share - basic: |
| $ | 1.44 |
|
| $ | 1.70 |
|
| $ | 3.68 |
|
| $ | 2.00 |
|
| $ | 0.88 |
|
| $ | 0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Earnings (loss) allocated to common |
| $ | 81 |
|
| $ | 96 |
|
| $ | 207 |
|
| $ | 113 |
| ||||||||
Earnings (loss) allocated to common |
| $ | 49 |
|
| $ | 53 |
| ||||||||||||||||
Plus: Earnings allocated to |
|
| 1 |
|
|
| 1 |
|
|
| 4 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
Less: Adjusted earnings allocated to |
|
| 1 |
|
|
| 1 |
|
|
| 4 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
Earnings (loss) allocated to common |
| $ | 81 |
|
| $ | 96 |
|
| $ | 207 |
|
| $ | 113 |
| ||||||||
Earnings (loss) allocated to common |
| $ | 49 |
|
| $ | 53 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Adjusted weighted average common |
|
| 56.1 |
|
|
| 56.3 |
|
|
| 56.2 |
|
|
| 56.5 |
|
|
| 55.3 |
|
|
| 56.3 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Common shares issuable(3) |
|
| 0.4 |
|
|
| 0.5 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.5 |
|
|
| 0.4 |
|
Adjusted weighted average common |
|
| 56.5 |
|
|
| 56.8 |
|
|
| 56.7 |
|
|
| 56.9 |
|
|
| 55.8 |
|
|
| 56.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Earnings (loss) per common share - diluted: |
| $ | 1.43 |
|
| $ | 1.69 |
|
| $ | 3.65 |
|
| $ | 1.99 |
|
| $ | 0.88 |
|
| $ | 0.93 |
|
1614
Undistributed earnings are the earnings which remain after dividends declared during the period are assumed to be distributed to the common and participating shareholders.stockholders. Undistributed earnings are allocated to common and participating shareholdersstockholders on the same basis as dividend distributions. The calculation of undistributed earnings is as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Calculation of undistributed earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) attributable to Cabot Corporation |
| $ | 82 |
|
| $ | 97 |
|
| $ | 211 |
|
| $ | 115 |
|
| $ | 50 |
|
| $ | 54 |
|
Less: Dividends declared on common stock |
|
| 23 |
|
|
| 21 |
|
|
| 64 |
|
|
| 63 |
|
|
| 22 |
|
|
| 21 |
|
Less: Dividends declared on participating |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Undistributed earnings (loss) |
| $ | 59 |
|
| $ | 76 |
|
| $ | 146 |
|
| $ | 51 |
|
| $ | 28 |
|
| $ | 33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allocation of undistributed earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Undistributed earnings (loss) allocated to |
| $ | 58 |
|
| $ | 75 |
|
| $ | 143 |
|
| $ | 50 |
| ||||||||
Undistributed earnings allocated to |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 1 |
| ||||||||
Undistributed earnings (loss) allocated to |
| $ | 27 |
|
| $ | 32 |
| ||||||||||||||||
Undistributed earnings allocated to |
|
| 1 |
|
|
| 1 |
| ||||||||||||||||
Undistributed earnings (loss) |
| $ | 59 |
|
| $ | 76 |
|
| $ | 146 |
|
| $ | 51 |
|
| $ | 28 |
|
| $ | 33 |
|
K.H. Restructuring
2024 Reorganizations
During the first quarter of fiscal 2024, the Company initiated restructuring activities in both its Reinforcement Materials segment (“RM Plan”) and its Performance Chemicals segment (“PC Plan”).
Under the RM Plan, the Company will close its reinforcing carbons unit at the facility in Tianjin, China that the Company acquired from Tokai Carbon Group in February 2022. The Company expects to consolidate reinforcing carbons operations and reduce ongoing operational costs. During the three months ended December 31, 2023, the Company recorded charges of $2 million for severance related costs and $6 million for accelerated depreciation as part of the RM Plan. The Company expects to record additional restructuring charges of $1 million related to the RM Plan during the remainder of fiscal 2024.
Under the PC Plan, the Company will temporarily idle its aerogel manufacturing plant in Frankfurt, Germany and reorganize certain positions within the Performance Chemicals segment to reduce operating costs. While the Frankfurt facility is idled, the Company expects to reduce inventory levels at that facility as the Company continues its efforts to commercialize aerogel for use in thermal insulation for electric vehicles. During the three months ended December 31, 2023, the Company recorded charges of $1 million for severance related costs as part of the PC Plan. The Company expects to record additional restructuring charges of $3 million related to the PC Plan during the remainder of fiscal 2024.
Cabot’s restructuring activities were recorded in the Consolidated Statements of Operations for the three months ended December 31, 2023 and 2022 as follows:
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Cost of sales |
| $ | 9 |
|
| $ | — |
|
Total |
| $ | 9 |
|
| $ | — |
|
15
Details of all restructuring activities and the related reserves during the three months ended December 31, 2023 were as follows:
|
| Severance |
|
| Accelerated Depreciation on Assets |
|
| Total |
| |||
|
| (In millions) |
| |||||||||
Reserve at September 30, 2023 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Charges |
|
| 3 |
|
|
| 6 |
|
|
| 9 |
|
Cost charged against assets |
|
| — |
|
|
| (6 | ) |
|
| (6 | ) |
Cash paid |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Reserve at December 31, 2023 |
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
Cabot’s severance and employee benefit reserves are reflected in Accounts payable and accrued liabilities on the Company’s Consolidated Balance Sheets.
I. Financial Instruments and Fair Value Measurements
The FASB authoritative guidance on fair value measurements defines fair value, provides a framework for measuring fair value, and requires certain disclosures about fair value measurements. The required disclosures focus on the inputs used to measure fair value. The guidance establishes the following hierarchy for categorizing these inputs:
Level 1 |
| — |
| Quoted market prices in active markets for identical assets or liabilities |
|
|
|
|
|
Level 2 |
| — |
| Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs) |
|
|
|
|
|
Level 3 |
| — |
| Significant unobservable inputs |
There were no transfers of financial assets or liabilities measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during the first ninethree months of either fiscal 20232024 or 2022.2023.
At June 30,December 31, 2023 and September 30, 2022,2023, the fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and short-term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments. Each of these financial assetCash and liability categories iscash equivalents are classified as Level 1 within the fair value hierarchy.
At June 30,December 31, 2023 and September 30, 2022,2023, Cabot had derivatives relating to foreign currency risks, including a net investment hedge and forward foreign currency contracts, carried at fair value. At June 30,December 31, 2023 the fair value of these derivatives was a net asset of $84 million and was included in Prepaid expenses and other current assets, Accounts payable and accrued liabilities, and Other assets on the Consolidated Balance Sheets. At September 30, 2022,2023, the fair value of these derivatives was a netan asset of $2812 million and was included in Prepaid expenses and other current assets Accounts payable and accrued liabilities, and Other assets on the Consolidated Balance Sheets. These derivatives are classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on observable inputs.
17
At June 30,December 31, 2023 and September 30, 2022,2023, the fair value of guaranteed investment contracts included in Other assets on the Consolidated Balance Sheets was $9 million and $8 million, respectively. Guaranteed investment contracts were classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on other observable inputs.
The carrying value and fair value of the long-term fixed rate debt were $1.081.09 billion and $1.071.08 billion, respectively, as of June 30,December 31, 2023 and $1.08 billion and $1.061.04 billion, respectively, as of September 30, 2022.2023. The fair values of Cabot’s fixed rate long-term debt are estimated based on comparable quoted market prices at the respective period ends. The carrying amounts of Cabot’s floating rate long-term debt and finance and operating lease obligations approximate their fair values. All such measurements are based on observable inputs and are classified as Level 2 within the fair value hierarchy. The valuation technique used is the discounted cash flow model.
L.J. Supplier Financing Programs
The Company maintains supply chain finance agreements with third-party financial institutions. These agreements allow the Company’s participating suppliers to sell their receivables to such third-party financial institutions to receive payment earlier than the negotiated commercial terms between the supplier and the Company. Such sales are at the sole discretion of the supplier, and on terms and conditions that are negotiated between the supplier and the respective financial institution. The terms and conditions of the supplier invoice, including payment terms and amounts due, are not impacted by a supplier’s participation in the program. Pursuant to the supply chain finance agreements, the Company has agreed to pay financial institutions on the original due date of the applicable invoice. There are no guarantees associated with these programs. The Company's outstanding payment obligations to
16
financial institutions related to supplier financing programs were $17 million at both December 31, 2023 and September 30, 2023 and are included within Accounts payable and accrued liabilities on the Consolidated Balance Sheets.
K. Financial Information by Segment
The Company identifies a product line as an operating segment if: i) it engages in business activities from which it may earn revenues and incur expenses; ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Cabot’s President and Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance; and iii) it has available discrete financial information. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Operating segments are aggregated into a reportable segment if the operating segments are determined to have similar economic characteristics and if the operating segments are similar in the following areas: i) nature of products and services; ii) nature of production processes; iii) type or class of customer for their products and services; iv) methods used to distribute the products or provide services; and v) if applicable, the nature of the regulatory environment.
The Company has two reportable segments consisting ofsegments: Reinforcement Materials and Performance Chemicals. The Company’s former Purification Solutions business was a separate reporting segment prior to divestiture in the second quarter of fiscal 2022.
The Reinforcement Materials segment combines the reinforcing carbons and engineered elastomer composites product lines.
The Performance Chemicals segment aggregates the specialty carbons, specialty compounds, fumed metal oxides, battery materials, inkjet colorants and aerogel product lines. These businesses are similar in terms of economic characteristics, nature of products, processes, customer class and product distribution methods, and therefore have been aggregated into one reportable segment.
The Purification Solutions segment consisted of the Company’s activated carbon business.
Income (loss) before income taxes (“Segment EBIT”) is presented for each reportable segment in the table below. Segment EBIT excludes Interest expense, generalGeneral unallocated income (expense), unallocatedUnallocated corporate costs and certainCertain items, meaning items management does not consider representative of on-going operating segment results. In addition, Segment EBIT includes Equity in earnings of affiliated companies, net of tax, royalties, Net income attributable to noncontrolling interests, net of tax, and discounting charges for certain Notes receivable.
18
Financial information by reportable segment is as follows:
|
| Reinforcement |
|
| Performance |
|
| Purification |
|
| Segment |
|
| Unallocated |
|
| Consolidated |
| ||||||
|
| (In millions) |
| |||||||||||||||||||||
Three Months Ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues from external customers(3) |
| $ | 624 |
|
| $ | 307 |
|
| $ | — |
|
| $ | 931 |
|
| $ | 37 |
|
| $ | 968 |
|
Income (loss) before income taxes(4) |
| $ | 132 |
|
| $ | 32 |
|
| $ | — |
|
| $ | 164 |
|
| $ | (34 | ) |
| $ | 130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Three Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Revenues from external customers(2)(3) |
| $ | 730 |
|
| $ | 376 |
|
| $ | — |
|
| $ | 1,106 |
|
| $ | 43 |
|
| $ | 1,149 |
|
Income (loss) before income taxes(4) |
| $ | 113 |
|
| $ | 63 |
|
| $ | — |
|
| $ | 176 |
|
| $ | (24 | ) |
| $ | 152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nine Months Ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Revenues from external customers(3) |
| $ | 1,939 |
|
| $ | 919 |
|
| $ | — |
|
| $ | 2,858 |
|
| $ | 108 |
|
| $ | 2,966 |
|
Income (loss) before income taxes(4) |
| $ | 348 |
|
| $ | 89 |
|
| $ | — |
|
| $ | 437 |
|
| $ | (113 | ) |
| $ | 324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nine Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Revenues from external customers(2)(3) |
| $ | 1,947 |
|
| $ | 1,045 |
|
| $ | 97 |
|
| $ | 3,089 |
|
| $ | 120 |
|
| $ | 3,209 |
|
Income (loss) before income taxes(4) |
| $ | 299 |
|
| $ | 185 |
|
| $ | — |
|
| $ | 484 |
|
| $ | (278 | ) |
| $ | 206 |
|
|
| Reinforcement |
|
| Performance |
|
| Segment |
|
| Unallocated |
|
| Consolidated |
| |||||
|
| (In millions) |
| |||||||||||||||||
Three Months Ended December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenues from external customers(2) |
| $ | 641 |
|
| $ | 285 |
|
| $ | 926 |
|
| $ | 32 |
|
| $ | 958 |
|
Income (loss) before income taxes(3) |
| $ | 129 |
|
| $ | 34 |
|
| $ | 163 |
|
| $ | (69 | ) |
| $ | 94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Revenues from external customers(2) |
| $ | 643 |
|
| $ | 286 |
|
| $ | 929 |
|
| $ | 36 |
|
| $ | 965 |
|
Income (loss) before income taxes(3) |
| $ | 94 |
|
| $ | 29 |
|
| $ | 123 |
|
| $ | (39 | ) |
| $ | 84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Shipping and handling fees |
| $ | 31 |
|
| $ | 44 |
|
| $ | 100 |
|
| $ | 124 |
|
| $ | 30 |
|
| $ | 33 |
|
Other |
|
| 6 |
|
|
| (1 | ) |
|
| 8 |
|
|
| (4 | ) |
|
| 2 |
|
|
| 3 |
|
Total |
| $ | 37 |
|
| $ | 43 |
|
| $ | 108 |
|
| $ | 120 |
|
| $ | 32 |
|
| $ | 36 |
|
1917
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
| |||||||||||||
Interest expense |
| $ | (24 | ) |
| $ | (15 | ) |
| $ | (69 | ) |
| $ | (38 | ) |
Certain items(a) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gain on bargain purchase of a business (Note C) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
Gain on sale of land |
|
| — |
|
|
| 17 |
|
|
| 1 |
|
|
| 17 |
|
Loss on sale of business and asset impairment charge (Note D) |
|
| — |
|
|
| (2 | ) |
|
| (3 | ) |
|
| (206 | ) |
Legal and environmental matters and reserves |
|
| — |
|
|
| (1 | ) |
|
| (2 | ) |
|
| (9 | ) |
Acquisition and integration-related charges |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (4 | ) |
Divestiture related charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
Global restructuring activities |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (3 | ) |
Other |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
Total certain items, pre-tax |
|
| (1 | ) |
|
| 12 |
|
|
| (7 | ) |
|
| (185 | ) |
Unallocated corporate costs(b) |
|
| (11 | ) |
|
| (15 | ) |
|
| (42 | ) |
|
| (45 | ) |
General unallocated income (expense)(c) |
|
| 3 |
|
|
| (3 | ) |
|
| 9 |
|
|
| (3 | ) |
Less: Equity in earnings of affiliated companies, net |
|
| 1 |
|
|
| 3 |
|
|
| 4 |
|
|
| 7 |
|
Total |
| $ | (34 | ) |
| $ | (24 | ) |
| $ | (113 | ) |
| $ | (278 | ) |
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Interest expense |
| $ | (22 | ) |
| $ | (22 | ) |
Certain items(a) |
|
|
|
|
|
| ||
Argentina controlled currency devaluation loss (Note B) |
|
| (33 | ) |
|
| — |
|
Global restructuring activities (Note H) |
|
| (9 | ) |
|
| — |
|
Gain on sale of land |
|
| — |
|
|
| 1 |
|
Loss on sale of business |
|
| — |
|
|
| (3 | ) |
Legal and environmental matters and reserves |
|
| — |
|
|
| (1 | ) |
Acquisition and integration-related charges |
|
| — |
|
|
| (1 | ) |
Total certain items |
|
| (42 | ) |
|
| (4 | ) |
Unallocated corporate costs(b) |
|
| (17 | ) |
|
| (15 | ) |
General unallocated income (expense)(c) |
|
| 13 |
|
|
| 4 |
|
Less: Equity in earnings of affiliated companies, net |
|
| 1 |
|
|
| 2 |
|
Total |
| $ | (69 | ) |
| $ | (39 | ) |
The Company’s segments operate globally. In addition to presenting Revenue from external customers by reportable segment, the following tables further disaggregate Revenues from external customers by geographic region.
|
| Three Months Ended December 31, 2023 |
| |||||||||
|
| Reinforcement |
|
| Performance |
|
| Consolidated Total |
| |||
|
| (In millions) |
| |||||||||
Americas |
| $ | 254 |
|
| $ | 88 |
|
| $ | 342 |
|
Asia Pacific |
|
| 260 |
|
|
| 120 |
|
|
| 380 |
|
Europe, Middle East and Africa |
|
| 127 |
|
|
| 77 |
|
|
| 204 |
|
Segment revenues from external customers |
|
| 641 |
|
|
| 285 |
|
|
| 926 |
|
Unallocated and other |
|
|
|
|
|
|
|
| 32 |
| ||
Net sales and other operating revenues |
|
|
|
|
|
|
| $ | 958 |
|
|
| Three Months Ended June 30, 2023 |
| |||||||||||||
|
| Reinforcement |
|
| Performance |
|
| Purification |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 260 |
|
| $ | 94 |
|
| $ | — |
|
| $ | 354 |
|
Asia Pacific |
|
| 234 |
|
|
| 119 |
|
|
| — |
|
|
| 353 |
|
Europe, Middle East and Africa |
|
| 130 |
|
|
| 94 |
|
|
| — |
|
|
| 224 |
|
Segment revenues from external customers |
|
| 624 |
|
|
| 307 |
|
|
| — |
|
|
| 931 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
| 37 |
| |||
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
| $ | 968 |
|
20
|
| Three Months Ended June 30, 2022 |
| |||||||||||||
|
| Reinforcement |
|
| Performance |
|
| Purification |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 302 |
|
| $ | 114 |
|
| $ | — |
|
| $ | 416 |
|
Asia Pacific |
|
| 265 |
|
|
| 147 |
|
|
| — |
|
|
| 412 |
|
Europe, Middle East and Africa |
|
| 163 |
|
|
| 115 |
|
|
| — |
|
|
| 278 |
|
Segment revenues from external customers |
|
| 730 |
|
|
| 376 |
|
|
| — |
|
|
| 1,106 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
| 43 |
| |||
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
| $ | 1,149 |
|
|
| Nine Months Ended June 30, 2023 |
| |||||||||||||
|
| Reinforcement |
|
| Performance |
|
| Purification |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 781 |
|
| $ | 283 |
|
| $ | — |
|
| $ | 1,064 |
|
Asia Pacific |
|
| 752 |
|
|
| 368 |
|
|
| — |
|
|
| 1,120 |
|
Europe, Middle East and Africa |
|
| 406 |
|
|
| 268 |
|
|
| — |
|
|
| 674 |
|
Segment revenues from external customers |
|
| 1,939 |
|
|
| 919 |
|
|
| — |
|
|
| 2,858 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
| 108 |
| |||
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
| $ | 2,966 |
|
|
| Nine Months Ended June 30, 2022 |
|
| Three Months Ended December 31, 2022 |
| ||||||||||||||||||||||
|
| Reinforcement |
|
| Performance |
|
| Purification |
|
| Consolidated Total |
|
| Reinforcement |
|
| Performance |
|
| Consolidated Total |
| |||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||
Americas |
| $ | 767 |
|
| $ | 314 |
|
| $ | 43 |
|
| $ | 1,124 |
|
| $ | 241 |
|
| $ | 89 |
|
| $ | 330 |
|
Asia Pacific |
|
| 773 |
|
|
| 422 |
|
|
| 14 |
|
|
| 1,209 |
|
|
| 273 |
|
|
| 126 |
|
|
| 399 |
|
Europe, Middle East and Africa |
|
| 407 |
|
|
| 309 |
|
|
| 40 |
|
|
| 756 |
|
|
| 129 |
|
|
| 71 |
|
|
| 200 |
|
Segment revenues from external customers |
|
| 1,947 |
|
|
| 1,045 |
|
|
| 97 |
|
|
| 3,089 |
|
|
| 643 |
|
|
| 286 |
|
|
| 929 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
| 120 |
|
|
|
|
|
|
|
|
| 36 |
| |||||
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
| $ | 3,209 |
|
|
|
|
|
|
|
| $ | 965 |
|
2118
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
Our critical accounting policies have not substantially changed from those described in the 2022 10-K.
Recently Issued Accounting Pronouncements
Refer to the discussion under the heading “Recent Accounting Pronouncements” in Note B of our Notes to the Consolidated Financial Statements.
Results of Operations
The Company has two reportable segments: Reinforcement Materials and Performance Chemicals. The Company’s former Purification Solutions business was a separate reporting segment prior to divestiture in the second quarter of fiscal 2022. Cabot is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific. The discussion of our results of operations for the periods presented reflects these structures.
Our analysis of our financial condition and operating results should be read with our consolidated financial statements and accompanying notes.
Definition of Terms and Non-GAAP Financial Measures
When discussing our results of operations, we use several terms as described below.
The term “product mix” refers to the mix of types and grades of products sold or the mix of geographic regions where products are sold, and the positive or negative impact this has on the revenue or profitability of the business and/or segment.
Our discussion under the heading “(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate” includes a discussion and reconciliation of our “effective tax rate” and our “operating tax rate” for the periods presented, as well as management’s projection of our operating tax rate range for the fullnext fiscal year. Our operating tax rate is a non-GAAP financial measure and should not be considered as an alternative to our effective tax rate, the most comparable GAAP financial measure. The operating tax rate is calculated based upon management's forecast of the annual operating tax rate for the fiscal year applied to adjusted pre-tax earnings. The operating tax rate excludes income tax (expense) benefit on certain items, discrete tax items, and, on a quarterly basis, the timing of losses in certain jurisdictions. The income tax (expense) benefit on certain items is determined using the applicable rates in the taxing jurisdictions in which the certain items occurred and includes both current and deferred income tax (expense) benefit based on the nature of the certain items. Discrete tax items include, but are not limited to, changes in valuation allowance, uncertain tax positions, and other tax items, such as the tax impact of legislative changes and tax accruals on historic earnings due to changes in indefinite reinvestment assertions. Our definition of the operating tax rate may not be comparable to the definition used by other companies. Management believes that this non-GAAP financial measure is useful supplemental information because it helps our investors compare our tax rate year to year on a consistent basis and to understand what our tax rate on current operations would be without the impact of these items.
Our discussion under the heading “Third“First Quarter of Fiscal 20232024 versus ThirdFirst Quarter of Fiscal 2022—2023—By Business Segment” includes a discussion of Total segment EBIT, which is a non-GAAP financial measure defined as Income (loss) from operations before income taxes and equity in earnings from affiliated companies less certain items and other unallocated items. Our Chief Operating Decision Maker, who is our President and Chief Executive Officer, uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe Total segment EBIT, which reflects the sum of EBIT from our reportable segments, provides useful supplemental information for our investors as it is an important indicator of our operational strength and performance, allows investors to see our results through the eyes of management, and provides context for our discussion of individual business segment performance. Our definition of Total segment EBIT may not be comparable to the definition used by other companies and it should not be considered an alternative for Income (loss) from operations before income taxes and equity in earnings of affiliated companies, which is the most directly comparable U.S. GAAP financial measure. A reconciliation of Total segment EBIT to Income (loss) from operations before income taxes and equity in earnings of affiliated companies is provided under the heading “Third“First quarter of Fiscal 20232024 versus ThirdFirst quarter of Fiscal 2022—2023—By Business Segment”. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another.
22
In calculating Total segment EBIT, we exclude from our Income (loss) from operations before income taxes and equity in earnings of affiliated companies (i) items of expense and income that management does not consider representative of our fundamental on-going segment results, which we refer to as “certain items”, and (ii) items that, because they are not controlled by the business segments and primarily benefit corporate objectives, are not allocated to our business segments, such as interest expense and other corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to special projects and initiatives, which we refer to as “other unallocated items”. Management believes excluding the items identified as certain items facilitates operating performance comparisons from period to period by eliminating differences that would not otherwise be apparent on a GAAP basis and also facilitates an evaluation of our operating performance without the impact of these costs or benefits. The items of income and expense that we excludehave excluded from
19
Total segment EBIT, as applicable, but that are included in our GAAP Income (loss) from operations before income taxes and equity in earnings of affiliated companies, as applicable, in a particular reporting period, include, but are not limited to, the following:described below.
Overview
During the thirdfirst quarter of fiscal 2023,2024, Income (loss) before income taxes and equity in earnings of affiliated companies decreasedincreased compared to the thirdfirst quarter of fiscal 2022 due to a reduction in2023. The increase was driven by higher earnings in our Performance Chemicals segment partially offset by stronger results in our Reinforcement Materials segment.and Performance Chemicals segments and increased investment income in Argentina partially offset by foreign exchange losses primarily in Argentina.
ThirdFirst quarter of Fiscal 20232024 versus ThirdFirst quarter of Fiscal 2022—2023—Consolidated
Net Sales and Other Operating Revenues and Gross Profit
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Net sales and other operating revenues |
| $ | 968 |
|
| $ | 1,149 |
|
| $ | 2,966 |
|
| $ | 3,209 |
|
| $ | 958 |
|
| $ | 965 |
|
Gross profit |
| $ | 223 |
|
| $ | 235 |
|
| $ | 614 |
|
| $ | 665 |
|
| $ | 218 |
|
| $ | 181 |
|
The $181$7 million decrease in net sales and other operating revenues in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was driven by lower volumes in both segments ($92 million), unfavorable price and product mix (combined $56 million), the negative impact from foreign currency translation ($19 million), and lower by-product revenue ($8 million).
The $243 million decrease in netNet sales and other operating revenues in the first nine monthsquarter of fiscal 20232024 compared to the first nine monthsquarter of fiscal 20222023 was primarily driven by lower volumes ($198 million) the unfavorable impact from foreign currency translation ($130 million), the impact of the divestiture of our Purification Solutions business in fiscal 2022 ($97 million) and lower by-product revenue ($22 million). These decreases were partially offset by favorable price and product mix (combined $217$48 million) primarily inacross our Reinforcement Materials segment.
Forand Performance Chemicals segments driven by the three and nine months ended June 30, 2023, gross profit decreased by $12 million and $51 million, respectively, compared to the same periodspass through of fiscal 2022. The decrease was primarily due to lower volumes and higher fixedraw material costs, partially offset by higher unit margins in our Reinforcement Materials segment.volumes ($35 million).
23
Gross profit increased by $37 million in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The increase was primarily due to higher volumes and higher unit margins within the Reinforcement Materials and Performance Chemicals segments.
Selling and Administrative Expenses
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
| |||||||||||||
Selling and administrative expenses |
| $ | 58 |
|
| $ | 51 |
|
| $ | 184 |
|
| $ | 196 |
|
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Selling and administrative expenses |
| $ | 67 |
|
| $ | 60 |
|
Selling and administrative expenses increased by $7 million in the thirdfirst quarter of fiscal 2023 and decreased by $12 million for the nine months ended June 30, 2023,2024 compared to the same periods of fiscal 2022.
The increase in selling and administrative expenses in the third quarterperiod of fiscal 2023, compared to the third quarter of fiscal 2022was primarily due to a $17 million benefit from the sale of land in the fiscal 2022 period, partially offset by a decreasean increase in the incentive compensation accrual for the fiscal 2023 period.expense.
The decrease in selling and administrative expenses in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 was primarily due to a decrease in the incentive compensation accrual for the fiscal 2023 period and prior year charges related to the Purification Solutions divestiture and our legal reserve for respirator matters, partially offset by the benefit from the sale of land in the fiscal 2022 period.20
Research and Technical Expenses
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
| |||||||||||||
Research and technical expenses |
| $ | 15 |
|
| $ | 14 |
|
| $ | 43 |
|
| $ | 41 |
|
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Research and technical expenses |
| $ | 15 |
|
| $ | 13 |
|
Research and technical expenses increased by $1 million and $2 million for the third quarter andin the first nine monthsquarter of fiscal 2023, respectively,2024 compared to the same periodsperiod of fiscal 2022.2023.
Loss on Sale of Business
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Loss on sale of business |
| $ | — |
|
| $ | 3 |
|
There was no Loss on sale of business in the first quarter of fiscal 2024. Previously reported Loss on sale of business in fiscal 2023 is associated with the fiscal 2022 divesture of the Purification Solutions business.
Interest and Dividend Income, Interest Expense and Other Income (Expense)
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Interest and dividend income |
| $ | 7 |
|
| $ | — |
|
| $ | 22 |
|
| $ | 7 |
|
| $ | 9 |
|
| $ | 6 |
|
Interest expense |
| $ | (24 | ) |
| $ | (15 | ) |
| $ | (69 | ) |
| $ | (38 | ) |
| $ | (22 | ) |
| $ | (22 | ) |
Other income (expense) |
| $ | (3 | ) |
| $ | (1 | ) |
| $ | (13 | ) |
| $ | (9 | ) |
| $ | (29 | ) |
| $ | (5 | ) |
Interest and dividend income increased by $7 million and $15$3 million in the three and nine months ended June 30, 2023, respectively,first quarter of fiscal 2024 compared to the same periodsperiod of fiscal 2022,2023, primarily due to higher interest rates.
Interest expense increased by $9 million and $31 millionremained flat in the three and nine months ended June 30, 2023, respectively,first quarter of fiscal 2024, as compared to the same periodsperiod of fiscal 2022,2023, primarily due to lower commercial paper balances, offset by higher interest rates.
Other expense increased by $2 million and $4$24 million in the thirdfirst quarter of fiscal 2023 and the first nine months of fiscal 2023, respectively,2024 compared to the same periodsperiod of fiscal 2022, driven by higher2023, primarily due to foreign currency losses primarily in Argentina,on the revaluation of our Argentine peso monetary assets and liability balances ($40 million), partially offset by an increase in investment income ($12 million) on our cash and cash equivalent balances in Argentina and Brazil.Argentina.
24
(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate
|
| Three Months Ended June 30 |
|
| Three Months Ended December 31 |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||
|
| (Provision) / Benefit for Income Taxes |
|
| Rate |
|
| (Provision) / Benefit for Income Taxes |
|
| Rate |
|
| (Provision) / Benefit for Income Taxes |
|
| Rate |
|
| (Provision) / Benefit for Income Taxes |
|
| Rate |
| ||||||||
Dollars in millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Effective tax rate |
| $ | (41 | ) |
|
| 32 | % |
| $ | (49 | ) |
|
| 32 | % |
| $ | (34 | ) |
|
| 36 | % |
| $ | (20 | ) |
|
| 24 | % |
Less: Non-GAAP tax adjustments(1) |
|
| 2 |
|
|
|
|
|
| (15 | ) |
|
|
|
|
| 4 |
|
|
|
|
|
| 1 |
|
|
|
| ||||
Operating tax rate |
| $ | (43 | ) |
|
| 33 | % |
| $ | (34 | ) |
|
| 24 | % |
| $ | (38 | ) |
|
| 28 | % |
| $ | (21 | ) |
|
| 25 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Nine Months Ended June 30 |
| |||||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||||||||
|
| (Provision) / Benefit for Income Taxes |
|
| Rate |
|
| (Provision) / Benefit for Income Taxes |
|
| Rate |
| ||||||||||||||||||||
Dollars in millions |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Effective tax rate |
| $ | (90 | ) |
|
| 28 | % |
| $ | (73 | ) |
|
| 35 | % | ||||||||||||||||
Less: Non-GAAP tax adjustments(1) |
|
| 3 |
|
|
|
|
|
| 29 |
|
|
|
| ||||||||||||||||||
Operating tax rate |
| $ | (93 | ) |
|
| 28 | % |
| $ | (102 | ) |
|
| 26 | % |
For the three months ended June 30,December 31, 2023, the (Provision) benefit for income taxes was a provision of $41$34 million compared to $49a $20 million provision for the same period in 2022. For the ninethree months ended June 30, 2023,December 31, 2022, with the (Provision) benefit for income taxes was a provision of $90 million comparedchange primarily due to $73 million for the same period in 2022. Includedhigher earnings in the (Provision) benefit for income taxes in the nine months ended June 30, 2022 is a net discrete tax benefit of $22 million primarily comprised of $36 million related to the divestiture of the Purification Solutions business, and a tax expense of $8 million related to withholding tax accruals on historic earnings due to changes in indefinite reinvestment assertion on certain entities.current period. Our income taxes are affected by the mix of earnings in the tax jurisdictions in which we operate, and by the presence of valuation allowances in certain tax jurisdictions.
For fiscal 2023,2024, the Company expects the Operating tax rate is expected to be in the range of 27%28% to 29%30%. We are not providing a forward-looking reconciliation of the operating tax rate range with an effective tax rate range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to “certain items,” which have historically includedincluding unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. Matters allocated to certainThese items are unpredictable,uncertain, depend on various factors, and could have a material impact on the effective tax rate in future periods.
We regularly evaluate the realizability of our net deferred tax assets. As of June 30, 2023, substantially all our U.S. deferred tax assets, net of deferred tax liabilities, were subject to valuation allowances. There is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available to reach a conclusion that all or a significant portion of the valuation allowances will no longer be required. Such a release would result in a material non-cash income tax benefit in our Consolidated Statement of Operations in the period of release and an increase of net deferred tax assets on our Consolidated Balance Sheet.21
Net Income (Loss) Attributable to Noncontrolling Interests
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Equity in earnings of affiliated companies, |
| $ | 1 |
|
| $ | 3 |
|
| $ | 4 |
|
| $ | 7 |
|
| $ | 1 |
|
| $ | 2 |
|
Net income (loss) attributable to |
| $ | 8 |
|
| $ | 9 |
|
| $ | 27 |
|
| $ | 25 |
|
| $ | 11 |
|
| $ | 12 |
|
Equity in earnings of affiliated companies, net of tax, decreased by $2 million and $3$1 million in the thirdfirst quarter and the first nine months of fiscal 2023, respectively,2024 compared to the same periodsperiod of fiscal 20222023, primarily due to lower profitability at our equity affiliate in India.
25
Venezuela.
Net income (loss) attributable to noncontrolling interests, net of tax, decreased by $1 million in the thirdfirst quarter and increased by $2 million for the nine months ended June 30, 2023,of fiscal 2024 compared to the same periodsperiod of fiscal 2022. The lower income for the three month period was primarily due to the lower profitability of our joint ventures in China. The higher income for the nine month period was primarily due to the higher profitability of our joint venture in the Czech Republic.2023.
Net Income Attributable to Cabot Corporation
In the thirdfirst quarter and first nine months of fiscal 2023,2024, we reported Net income (loss) attributable to Cabot Corporation of $82 million and $211$50 million, or $1.43$0.88 per diluted common share and $3.65 per diluted common share, respectively.share. This compares to Net income (loss) attributable to Cabot Corporation of $97 million and $115$54 million, or $1.69$0.93 per diluted common share, and $1.99 per diluted common share, respectively, in the thirdfirst quarter and first nine months of fiscal 2022.2023. The lower net income in the thirdfirst quarter of fiscal 20232024 compared with the same period in fiscal 20222023 is primarily due to lower volumes and higher fixed costsforeign currency losses of $40 million in Argentina, a higher provision for income taxes of $14 million, partially offset by higher unit margins. TheTotal segment EBIT of $40 million and higher netGeneral unallocated income in the first nine months of fiscal 2023 compared with the same period in fiscal 2022 is primarily due to an impairment charge associated with the divestiture of Purification Solutions in fiscal 2022 that did not reoccur in fiscal 2023.$9 million.
ThirdFirst quarter of Fiscal 20232024 versus ThirdFirst quarter of Fiscal 2022—2023—By Business Segment
Income (loss) before income taxes and equity in earnings of affiliated companies, certain items, other unallocated items and Total segment EBIT for the three and nine months ended June 30,December 31, 2023 and 2022 are set forth in the table below. The details of certain items and other unallocated items are shown below and in Note LK of our Notes to the Consolidated Financial Statements.
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Income (loss) before income taxes and |
| $ | 130 |
|
| $ | 152 |
|
| $ | 324 |
|
| $ | 206 |
|
| $ | 94 |
|
| $ | 84 |
|
Less: Certain items |
|
| (1 | ) |
|
| 12 |
|
|
| (7 | ) |
|
| (185 | ) |
|
| (42 | ) |
|
| (4 | ) |
Less: Other unallocated items |
|
| (33 | ) |
|
| (36 | ) |
|
| (106 | ) |
|
| (93 | ) |
|
| (27 | ) |
|
| (35 | ) |
Total segment EBIT |
| $ | 164 |
|
| $ | 176 |
|
| $ | 437 |
|
| $ | 484 |
|
| $ | 163 |
|
| $ | 123 |
|
In the thirdfirst quarter of fiscal 2023, Income (loss) before income taxes and equity in earnings of affiliated companies decreased by $22 million and Total segment EBIT decreased by $12 million. The decreases in Income (loss) before income taxes and equity earnings of affiliated companies and in Total segment EBIT were driven by lower volumes, higher fixed costs and the unfavorable impact of foreign currency movements partially offset by higher unit margins in Reinforcement Materials. Lower volumes in the Reinforcement Materials ($19 million) and Performance Chemicals segments ($20 million) were primarily due to demand softness in key end markets. Higher unit margins in the Reinforcement Materials segment ($42 million) were primarily due to improved pricing and product mix in our annual tire customer agreements.
In the first nine months of fiscal 2023,2024, Income (loss) before income taxes and equity in earnings of affiliated companies increased by $118$10 million and Total segment EBIT increased by $40 million. The increase is primarily due to the Purification Solutions loss on salein Income (loss) before income taxes and asset impairment chargeequity in earnings of $206 million in fiscal 2022, partially offsetaffiliated companies was largely driven by the gain on the Tokai Carbon acquisition of $24 million that did not reoccur in fiscal 2023.higher Total segment EBIT decreased by $47 million in the first nine months of fiscal 2023 as compared to the same period in fiscal 2022 driven by lower volumes, higher fixed costs and the unfavorable impact of foreign currency movements in both segments, partially offset by higher unit marginsforeign currency losses in Reinforcement Materials. LowerArgentina. Total segment EBIT was driven by higher volumes in both the Reinforcement Materials ($44 million) and Performance Chemicals segments ($48(combined $13 million) were primarily due to demand softnessand higher pricing and improved product mix, net of costs in key end markets and destocking. Higher unit margins in the Reinforcement Materials segment ($13028 million) were primarily due to improved pricing and product mix in our annual tire customer agreements.
26
.
Certain Items
Details of the certain items for the three and nine months ended June 30,December 31, 2023 and 2022 are as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
| |||||||||||||
Gain on bargain purchase of a business (Note C) |
| $ | — |
|
| $ |
| ― |
| $ | — |
|
| $ | 24 |
|
Gain on sale of land |
|
| — |
|
|
| 17 |
|
|
| 1 |
|
|
| 17 |
|
Loss on sale of business and asset impairment charge (Note D) |
|
| — |
|
|
| (2 | ) |
|
| (3 | ) |
|
| (206 | ) |
Legal and environmental matters and reserves |
|
| — |
|
|
| (1 | ) |
|
| (2 | ) |
|
| (9 | ) |
Acquisition and integration-related charges |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (4 | ) |
Divestiture related charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
Global restructuring activities |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (3 | ) |
Other |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
Total certain items, pre-tax |
|
| (1 | ) |
|
| 12 |
|
|
| (7 | ) |
|
| (185 | ) |
Non-GAAP tax adjustments |
|
| 2 |
|
|
| (15 | ) |
|
| 3 |
|
|
| 29 |
|
Total certain items, after tax |
| $ | 1 |
|
| $ | (3 | ) |
| $ | (4 | ) |
| $ | (156 | ) |
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Argentina controlled currency devaluation loss (Note B) |
| $ | (33 | ) |
| $ | — |
|
Global restructuring activities (Note H) |
|
| (9 | ) |
|
| — |
|
Gain on sale of land |
|
| — |
|
|
| 1 |
|
Loss on sale of business |
|
| — |
|
|
| (3 | ) |
Legal and environmental matters and reserves |
|
| — |
|
|
| (1 | ) |
Acquisition and integration-related charges |
|
| — |
|
|
| (1 | ) |
Total certain items |
| $ | (42 | ) |
| $ | (4 | ) |
22
Other Unallocated Items
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Interest expense |
| $ | (24 | ) |
| $ | (15 | ) |
| $ | (69 | ) |
| $ | (38 | ) |
| $ | (22 | ) |
| $ | (22 | ) |
Unallocated corporate costs |
|
| (11 | ) |
|
| (15 | ) |
|
| (42 | ) |
|
| (45 | ) |
|
| (17 | ) |
|
| (15 | ) |
General unallocated income (expense) |
|
| 3 |
|
|
| (3 | ) |
|
| 9 |
|
|
| (3 | ) |
|
| 13 |
|
|
| 4 |
|
Less: Equity in earnings of affiliated |
|
| 1 |
|
|
| 3 |
|
|
| 4 |
|
|
| 7 |
|
|
| 1 |
|
|
| 2 |
|
Total other unallocated items |
| $ | (33 | ) |
| $ | (36 | ) |
| $ | (106 | ) |
| $ | (93 | ) |
| $ | (27 | ) |
| $ | (35 | ) |
Total Other unallocated items increased by $8 million due to higher General unallocated income (expense) resulting from higher investment income on our cash and cash equivalent balances in Argentina.
A discussion of items that we refer to as “other unallocated items” can be found under the heading “Definition of Terms and Non-GAAP Financial Measures”. The balances of unallocated corporate costs are primarily comprised of expenditures related to managing a public company that are not allocated to the segments and corporate business development costs related to ongoing corporate projects. The balances of General unallocated income (expense) consist of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, interest and dividend income, the profit or loss related to the corporate adjustment for unearned revenue and unrealized holding gains (losses) for investments. General unallocated income (expense) does not include items of income or expense that are separately treated as Certain items.
Reinforcement Materials
Sales and EBIT for Reinforcement Materials for the thirdfirst quarter and first nine months of fiscal 20232024 and 20222023 were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
| |||||||||||||
Reinforcement Materials Sales |
| $ | 624 |
|
| $ | 730 |
|
| $ | 1,939 |
|
| $ | 1,947 |
|
Reinforcement Materials EBIT |
| $ | 132 |
|
| $ | 113 |
|
| $ | 348 |
|
| $ | 299 |
|
|
| Three Months Ended December 31 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In millions) |
| |||||
Reinforcement Materials Sales |
| $ | 641 |
|
| $ | 643 |
|
Reinforcement Materials EBIT |
| $ | 129 |
|
| $ | 94 |
|
Sales in Reinforcement Materials decreased by $106$2 million in the thirdfirst quarter of fiscal 20232024 compared to the same period of fiscal 2022,2023, primarily due to lower volumes ($59 million), less favorable price and product mix (combined $29$27 million), partially offset by higher volumes ($16 million) and the unfavorablefavorable impact from foreign currency translation ($12 million) and lower by-product revenue ($59 million). The less favorable price and product mix was primarily due to lower feedstockraw material costs in China that are generally passed through to our customers. Volumescustomers and were lower across all regions primarily due to lower replacement tire demand.
In the first nine months of fiscal 2023, sales in Reinforcement Materials decreased by $8 million compared to the first nine months of fiscal 2022. The decrease was primarily due to lower volumes ($130 million), the unfavorable impact from foreign currency translation ($88 million) and lower by-product revenue ($15 million), partially offset by improvedfavorable price and product mix (combined $225 million). Lower volumes were primarily due to lower replacement tire demand and customer destocking. The improved price and product mix was primarily due to favorable 2022 andin the 2023 calendar year customer agreements. The higher volumes in the first quarter of fiscal 2024 were driven by higher volumes in Europe and Asia.
EBIT in Reinforcement Materials in the thirdfirst quarter of fiscal 20232024 increased by $19$35 million compared to the same period of fiscal 2022.2023. During the thirdfirst quarter of fiscal 2023,2024, the segment had higher unit margins, net of higher costs ($38 million), partially offset by lower volumes ($1928 million) and the unfavorable impact from foreign currency translationhigher volumes ($15 million). The higher unit
27
margins in the first quarter of fiscal 2024 were primarily driven by favorable pricing and product mix in the 2023 calendar year customer agreements. VolumesThe higher volumes were lower across all regions primarily due to lower replacement tire demand.
EBIT in Reinforcement Materials increased by $49 million in the first nine months of fiscal 2023 compared to the same period of fiscal 2022. The increase was driven by higher unit margins, net ofvolumes in Europe and Asia. The higher costs ($99 million) partially offset by lower volumes ($44 million) and the unfavorable impact from foreign currency translation ($6 million). The higher unit margins were primarily driven by favorable pricinghigher selling and product mix in the 2022 and 2023 calendar year customer agreements. Volumes were lower across all regions primarily due to lower replacement tire demand and destocking at our major tire customers.administrative expense.
As we look to the fourthsecond quarter of the fiscal year, we expect the Reinforcement Materials EBIT to decreaseimprove sequentially due to seasonally lower volumes in Europehigher pricing and higher fixed costsproduct mix related to the timingoutcome of maintenance activities.negotiations on our calendar year 2024 customer agreements and modestly higher sequential volumes.
Performance Chemicals
Sales and EBIT for Performance Chemicals for the thirdfirst quarter and first nine months of fiscal 20232024 and 20222023 were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended December 31 |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||
Performance Chemicals Sales |
| $ | 307 |
|
| $ | 376 |
|
| $ | 919 |
|
| $ | 1,045 |
|
| $ | 285 |
|
| $ | 286 |
|
Performance Chemicals EBIT |
| $ | 32 |
|
| $ | 63 |
|
| $ | 89 |
|
| $ | 185 |
|
| $ | 34 |
|
| $ | 29 |
|
Sales in Performance Chemicals decreased by $69$1 million in the thirdfirst quarter of fiscal 20232024 compared to the same period of fiscal 2022,2023, primarily due to less favorable price and product mix (combined $22 million), partially offset by higher volumes ($19 million) and the favorable impact from foreign currency translation ($3 million). The less favorable price and product mix was primarily due to lower volumes ($32 million), less favorable pricing andraw material costs that are generally passed through to our customers in our specialty carbons product mix ($27 million), the unfavorable impact of foreign currency translation ($6 million) and lower by-product revenue ($2 million). line.
23
The lowerhigher volumes in the thirdfirst quarter of fiscal 20232024 were driven by demand softnessprimarily in key end markets, particularly in our specialty carbons, specialty compounds and fumed metal oxides product line. The less favorable product mix was due to less favorable product mix in our battery materials and specialty carbons product lines.
In the first nine months of fiscal 2023, sales in Performance Chemicals decreased by $126 million compared to the same period of fiscal 2022 due to lower volumes ($68 million), the unfavorable impact of foreign currency translation ($42 million), lower by-product revenue ($7 million) and less favorable pricing and product mix ($9 million). The lower volumes were primarily due to customer destocking, demand softness in key end markets and the impact from COVID-19 outbreaks in China.
EBIT in Performance Chemicals decreasedincreased by $31$5 million in the thirdfirst quarter of fiscal 2024 compared to the first quarter of fiscal 2023 comparedprimarily due to higher volumes ($7 million). The higher volumes in the thirdfirst quarter of fiscal 2022, due to lower volumes ($20 million), lower unit margins ($9 million) and higher costs associated with the unfavorable impact of the reduction in inventory levels ($4 million). The lower volumes in the third quarter of fiscal 2023 were driven by demand softness across all regions. Lower unit margins2024 were primarily due to less favorable product mix in theour specialty carbons, specialty compounds and battery materialsfumed metal oxides product lines.
EBIT in Performance Chemicals decreased by $96 million in the first nine months of fiscal 2023 compared to the same period of fiscal 2022, due to lower volumes ($48 million), lower unit margins ($24 million), the unfavorable impact of a reduction in inventory levels ($15 million) and the unfavorable impact of foreign currency translation ($9 million). Lower unit margins were largely due to less favorable product mix in the specialty carbons and battery materials product lines. The segment also experienced higher costs associated with the unfavorable impact of reduction in inventory levels ($15 million). Lower volumes were driven by customer destocking, demand softness in key end markets, and the impact from COVID-19 outbreaks in China.
As we look ahead to the fourthsecond quarter of the fiscal year, we expect EBIT to improve sequentially due toseasonally higher volumes in our battery materialswill be more than offset by higher fixed costs, including higher costs associated with maintenance activities and inkjet product lines.
Purification Solutions
Sales and EBIT for Purification Solutions for the third quarter and first nine monthsreduction of fiscal 2023 and 2022 were as follows:inventory levels.
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In millions) |
| |||||||||||||
Purification Solutions Sales |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 97 |
|
Purification Solutions EBIT |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
28
We divested the Purification Solutions business in March 2022. Refer to Note D of our Notes to the Consolidated Financial Statements.
Liquidity and Capital Resources
Overview
Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, increaseddecreased by $233$14 million during the first ninethree months of fiscal 2023,2024, which was primarilylargely due to a higher cash balance, lower outstanding commercial paper andbalance at the impactend of foreign currency rates partially offset by increased borrowing on the Euro Credit Agreement (as defined below).period. As of June 30,December 31, 2023, we had cash and cash equivalents of $220$244 million and borrowing availability under our revolving credit agreements of $1.1$1.0 billion.
We have access to borrowings under the following two credit agreements:
As of June 30,December 31, 2023, we were in compliance with the debt covenants under the Credit Agreements, which, with limited exceptions, require us to comply on a quarterly basis with a leverage test requiring the ratio of consolidated net debt to consolidated EBITDA not to exceed 3.50 to 1.00. Consolidated net debt is defined as consolidated debt offset by the lesser of (i) unrestricted cash and cash equivalents and (ii) $150 million.
A significant portion of our business occurs outside the U.S. and our cash generation does not always align geographically with our cash needs. The vast majority of our cash and cash equivalent holdings tend to be held outside the U.S. We generally use a combination of U.S. earnings, repatriation of certain foreign earnings, commercial paper issuances and borrowings under our U.S. Credit Agreement to meet our U.S. cash needs. With the exception of Argentina, which has currency controls that prevent the distribution of cash, we are generally able to move cash throughout the Company through our cash pooling structures, intercompany accounts and/or distributions, as needed. Although we repatriate certain foreign earnings, cash held by foreign subsidiaries is generally considered permanently reinvested and is used to finance the subsidiaries’ operational activities and future investments. We usually reduce our commercial paper balance and, if applicable, borrowings under our Credit Agreements, at quarter-end using cash derived from customer collections, settlement of intercompany balances and short-term intercompany loans. If additional funds are needed in the U.S., we expect to be able to repatriate cash, including cash from China, while paying any withholding or other taxes. Changes in regulations and tax laws in the U.S. or foreign countries could restrict our ability to transfer funds or impose material costs on such transfers.
In addition to the currency controls that prevent the distribution of cash in Argentina, there are also regulations that require that all cash in Argentina be held in Argentine pesos and regulations that place restrictions related to how and when suppliers of imported goods and services into Argentina can be paid. These regulations likely come with increased costs and future regulations could further restrict our operations in Argentina.
As of June 30,December 31, 2023, we had $1.1$1.0 billion of availability under our Credit Agreements. As of June 30,December 31, 2023, we had $118$124 million of borrowings under the Euro Credit Agreement and no outstanding borrowings under the U.S. Credit Agreement. There was $134$205 million of commercial paper outstanding as of June 30,December 31, 2023.
We anticipate sufficient liquidity from (i) cash on hand; (ii) cash flows from operating activities; and (iii) cash available from the Credit Agreements and our commercial paper program to meet our operational and capital investment needs and financial obligations for the foreseeable future. The liquidity we derive from cash flows from operations is, to a large degree, predicated on our ability to collect our receivables in a timely manner, the cost of our raw materials, and our ability to manage inventory levels.
In addition, our subsidiary in Argentina may incur a foreign currency loss as a result of a significant government driven currency devaluation. The timing of any government action is uncertain, but could be in the near term and any loss we record would negatively impact earnings. As of June 30, 2023, we had approximately $35 million of Peso denominated net assets. As described above, currently there are currency controls that prevent the distribution or conversion of cash from Argentina, which makes up the majority of these net assets.
29
The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of Cash Flows.
24
Cash Flows from Operating Activities
Cash provided by operating activities, which consists of net income adjusted for the various non-cash items included in income, changes in working capital and changes in certain other balance sheet accounts, totaled $457$105 million in the first ninethree months of fiscal 20232024 compared to $5$52 million of cash usedprovided by operating activities during the same period of fiscal 2022.2023 primarily due to improved segment EBIT.
Cash provided by operating activities in the first ninethree months of fiscal 2024 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $41 million and foreign exchange losses of $34 million, primarily related to devaluation of the Argentine peso, which was partially offset by an increase in net working capital of $46 million. The increase in net working capital was largely driven by a decrease in Accounts payable and accrued expenses and an increase in Inventories and Accounts and notes receivable.
Cash used by operating activities in the first three months of fiscal 2023 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $107$35 million, and a decreasewhich was partially offset by an increase in net working capital of $96$34 million. The decreaseincrease in net working capital was largely driven by a decrease in accounts receivable due to lower customer prices from lower cost of raw materials and decreased sales volumes and a decrease in inventories and accountsAccounts payable and accrued expenses, driven by lower cost of raw materials.
Cash used by operating activities in the first nine months of fiscal 2022 was driven by an increase in net working capital of $390 million. The increase in net working capital was driven by an increase in accounts receivable due to higher sales and an increase in inventory driven by a higher cost of raw materials, partially offset by an increasea decrease in accounts payable.Accounts receivables.
Cash Flows from Investing Activities
Investing activities consumed $139$54 million of cash in the first ninethree months of fiscal 20232024 compared to $31$17 million of cash consumed in the first ninethree months of fiscal 2022.2023.
In the first ninethree months of fiscal 2024, investing activities included $54 million of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as growth-related capital, including capacity expansion capital projects.
In the first three months of fiscal 2023, investing activities included $166$35 million of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as growth-related capital, including capacity expansion projects, in Performance Chemicals, partially offset by proceeds from the sale of land of $7 million, proceeds from the sale of our Purification Solutions business of $6 million, and proceeds from insurance settlements of $12$6 million.
In the first nine months of fiscal 2022, investing activities included $121 million of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as capacity expansion capital expenditures primarily in Performance Chemicals. In addition, the first nine months of fiscal 2022 includes $79 million of net cash proceeds from the sale of our Purification Solutions business, $18 million of proceeds from the sale of land, and $9 million of cash paid for the acquisition of Tokai Carbon, net of cash assumed of $5 million.
Capital expenditures for fiscal 20232024 are expected to be approximatelybetween $250 million and $275 million. Our planned capital spending program for fiscal 20232024 is primarily for sustaining, compliance and improvement capital projects at our operating facilities as well as capacity expansion expenditures in the Performance Chemicals segment.
Province of Ontario Regulation 419 Update
As described in Part I, Item 1 of the 2022 10-K under the heading “Safety, Health, Environment, and Sustainability”, under the Province of Ontario Ministry of Environment, Conservation and Parks’ (“MECP”) Regulation 419, a new requirement for sulfur dioxide (“SO2”) emissions went into effect on July 1, 2023 for our reinforcing carbons plant in Sarnia, Ontario. On June 30, 2023, we received a letter from the MECP indicating that as of July 1 we are out of compliance with the new air standards for SO2 and in response submitted our required abatement plan in accordance with the regulation. We are continuing discussions with the MECP on a new technical standard for SO2 emissions controls at our plant as an alternative to this requirement that in its current form would require the installation of air pollution controls at the plant by July 1, 2028. We intend to continue to engage with the MECP on this alternative, or another compliance plan approach that is acceptable to the MECP. We anticipate that we will need to incur significant capital costs for the installation of these new SO2 emissions controls, particularly during the 24-month period prior to the date of installation.expenditures.
Cash Flows from Financing Activities
Financing activities consumed $371$29 million of cash in the first ninethree months of fiscal 20232024 compared to $129$92 million of cash providedconsumed during the same period of fiscal 2022.2023.
In the first ninethree months of fiscal 2024, financing activities primarily consisted of share repurchases of $33 million, dividend payments to stockholders of $22 million, and cash dividends paid to noncontrolling interests of $12 million. These payments were partially offset by net proceeds from commercial paper of $32 million and proceeds from sales of common stock of $7 million from stock option exercises.
In the first three months of fiscal 2023, financing activities primarily consisted of the repayment of commercial paper of $188$48 million, dividend payments to stockholders of $65$21 million, share repurchases of $48$17 million, cash dividends paid to noncontrolling interests of $41 million, net repayments of short-term borrowings of $24$14 million and repayments of long-term debt of $88$6 million. These payments were partially offset by proceeds from long-termshort-term borrowings of $79 million.
In the first nine months of fiscal 2022, financing activities primarily consisted of the issuance of commercial paper of $193$11 million and proceeds from short-term borrowingssales of $26 million. These proceeds were partially offset by dividend payments to stockholderscommon stock of $63$3 million share repurchases of $48 million, dividend payments to noncontrolling interests of $22 million, and repayments of long-term debt of $357 million.
30
from stock option exercises.
Forward-Looking Information
This report on Form 10-Q contains “forward-looking statements” under the Federal securities laws. These forward-looking statements address expectations or projections about the future, including our expectations regarding segmentour future business performance in the fourth quarter of fiscal 2023 as compared with EBIT in the third quarter of fiscal 2023 and the factors we expect will decrease EBIToverall prospects, including for margins, price and product mix, volumes and operations in our Reinforcement Materials segment, for volumes and increase EBITinventory levels in our Performance Chemicals segment;segment, inventory levels and commercialization efforts in our Aerogel product line, and for costs in both our Reinforcement Materials and Performance Chemicals segments; the impact and cost of restructuring activities; demand for our products; the sufficiency of our cash on hand, cash provided from operations and cash available under our credit and commercial paper facilities to fund our cash requirements; anticipated capital spending, including with respect to the installation of new SO2 emissions controls at our Sarnia, Ontario reinforcing carbons plant;spending; regulatory developments; cash requirements and uses of available cash, including future cash outlays associated with respirator liabilities and the timing of such outlays; amortization expenses; our operating tax rate; and the possible outcome of legal and environmental proceedings. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements made by authorized officers.
Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control or difficult to predict. If known or unknown risks materialize, our actual results could differ materially from those expressed in the forward-looking statements.
25
In addition to factors described elsewhere in this report, the following are some of the factors that could cause our actual results to differ materially from those expressed in our forward-looking statements: industry capacity utilization and competition from other specialty chemical companies; safety, health and environmental requirements and related constraints imposed on our business; regulatory and financial risks related to climate change developments; volatility in the price and availability of energy and raw materials, including with respect to the Russian invasion of Ukraine;Ukraine and the U.S.-China trade relationship; a significant adverse change in a customer relationship or the failure of a customer to perform its obligations under agreements with us; failure to achieve growth expectations from new products, applications and technology developments; failure to realize benefits from acquisitions, alliances, or joint ventures or achieve our portfolio management objectives; negative or uncertain worldwide or regional economic conditions and market opportunities, including from trade relations, global health matters including the COVID-19 pandemic or geo-political conflicts; litigation or legal proceedings; interest rates, tax rates, currency exchange controls, and fluctuations in foreign currency, exchange and interest rates;such as the recent currency movements in Argentina; our inability to complete capacity expansions or other development projects; and the accuracy of the assumptions we used in establishing reserves for our share of liability for respirator claims. These other factors and risks are discussed more fully in our 20222023 10-K and in our subsequent SEC filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the period ended June 30,December 31, 2023 does not differ materially from that discussed under Item 7A of our 20222023 10-K.
Item 4. Controls and Procedures
As of June 30,December 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of that date.
There were no changes in our internal controls over financial reporting that occurred during our fiscal quarter ended June 30,December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
3126
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The table below sets forth information regarding Cabot’s purchases of its equity securities during the quarter ended June 30,December 31, 2023:
Period |
| Total Number of |
|
| Average Price |
|
| Total Number of |
|
| Maximum Number (or |
| ||||
April 1, 2023 - April 30, 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 3,903,733 |
|
May 1, 2023 - May 31, 2023 |
|
| 195,000 |
|
| $ | 70.65 |
|
|
| 195,000 |
|
|
| 3,708,733 |
|
June 1, 2023 - June 30, 2023 |
|
| 17,161 |
|
| $ | 71.30 |
|
|
| 17,161 |
|
|
| 3,691,572 |
|
Total |
|
| 212,161 |
|
|
|
|
|
| 212,161 |
|
|
|
|
Period |
| Total Number of |
|
| Average Price |
|
| Total Number of |
|
| Maximum Number (or |
| ||||
October 1, 2023 - October 31, 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 2,984,970 |
|
November 1, 2023 - November 30, 2023 |
|
| 191,954 |
|
| $ | 76.74 |
|
|
| 191,954 |
|
|
| 2,793,016 |
|
December 1, 2023 - December 31, 2023 |
|
| 68,140 |
|
| $ | 77.33 |
|
|
| 68,140 |
|
|
| 2,724,876 |
|
Total |
|
| 260,094 |
|
|
|
|
|
| 260,094 |
|
|
|
|
Item 5. Other Information
(c). During our fiscal quarter ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) entered into, modified (as to amount, price or timing of trades) or terminated (i) contracts, instructions or written plans for the purchase or sale of our securities that are intended to satisfy the conditions specified in Rule 10b5-1(c) under the Exchange Act for an affirmative defense against liability for trading in securities on the basis of material nonpublic information or (ii) non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
32
Item 6. Exhibits
Exhibit No. |
| Description |
|
|
|
Exhibit 3.1 |
| |
|
|
|
Exhibit |
| |
(incorporated herein by reference to Exhibit | ||
| ||
| ||
|
|
|
Exhibit 31.1* |
| |
|
|
|
Exhibit 31.2* |
| |
|
|
|
Exhibit 32** |
| |
|
|
|
Exhibit 101.INS* |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
Exhibit 101.SCH* |
| Inline XBRL Taxonomy Extension Schema |
|
| |
|
| |
|
| |
|
| |
|
|
|
Exhibit 104* |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
* Filed herewith.
** Furnished herewith.
3327
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| CABOT CORPORATION | |
|
|
|
|
Date: |
| By: | /s/ Erica McLaughlin |
|
|
| Erica McLaughlin |
|
|
| Executive Vice President and Chief Financial Officer |
|
|
| (Duly Authorized Officer) |
|
|
|
|
|
|
|
|
Date: |
| By: | /s/ Lisa m. Dumont |
|
|
| Lisa M. Dumont |
|
|
| Vice President and Controller (Chief Accounting Officer) |
3428